Contents Investing in Africa
Pages Notice of the annual general meeting 2-3 Board of directors 4-5 Corporate governance 6-7 Chairman’s statement 8-9 Chief executive’s statement 10-16 Directors, officers and administration 17 Report of the directors 18 Statement of directors’ responsibilities 19 Report of the independent auditors 20 Consolidated statement of comprehensive income 21 Consolidated statement of financial position 22 Company statement of financial position 23 Consolidated statement of cash flows 24 Consolidated statement of changes in equity 25-26 Company statement of changes in equity 27-28 Notes to the consolidated financial statements 29-67 Principal Shareholders and Distribution of Shareholding 68 Notes 69-71 Proxy Form 72
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 1 Notice of the Annual General Meeting Investing in Africa
NOTICE IS HEREBY GIVEN that an Annual General Meeting of the Company will be held at Nairobi Serena Hotel on Thursday 24th May 2012 at 10a.m. to conduct the following business:
AGENDA
ORDINARY BUSINESS 1. To read the notice convening the meeting and determine if a quorum is present; 2. To receive, consider and if approved, adopt the Chairman’s statement, reports of the Directors and Auditors and audited financial statements for year ended 31st December, 2011; 3. To declare payment of a first and final Dividend recommended by the Board of Kshs 68,487,571/= (Kshs 0.25/= per share) for the year ended 31st December, 2011 to the shareholders in the Register of Members as at 12th April, 2012; 4. To elect Directors in accordance with the Company’s Articles of Association: In accordance with the Company’s Articles of Association, Mr. Ngugi Kiuna and Ms. Carol Musyoka retire by rotation from the office as Directors of the Company and, being eligible, they all offer themselves for re-election; 5. To approve the Directors’ Remuneration; and 6. To note that KPMG Kenya Certified Public Accountants having expressed willingness, continue in office as the Auditors by virtue of section 159 (2) of the Companies’ Act (Cap 486) and to authorise the Directors to fix their remuneration.
SPECIAL BUSINESS 1. To amend the Articles of Association of the Company to remove the requirement of publishing notices and other information regarding the Company in more than one daily newspaper. In this regard, the following resolutions are proposed as SPECIAL RESOLUTIONS:
“the Articles of Association of the Company be and are hereby amended by deleting the last paragraph of Article 64 and replacing it with the following new paragraph: Such notice may also be given by publishing a notice in one local daily newspaper with national circulation for one day. Where a notice is published in a daily newspaper, it shall be deemed to be served on the day on which it is first published.” “the Articles of Association of the Company be and are hereby amended by deleting the last sentence of Article 158 and replacing it with the following new sentence: The Company may also send the Accounts to all persons entitled thereto by publishing the Accounts on the Company’s official website provided that the Company shall send to every member or publish a summary of the financial statements and Auditors report in one daily newspaper with national circulation for one day drawing attention to the website on which the Accounts in full may be read and the address to which a request for a printed copy of the Accounts may be submitted to the Company Secretary and upon any such publication the Accounts shall be deemed to have been sent to every member or other person entitled to receive a copy of the Accounts.” “the Articles of Association of the Company be and are hereby deleting paragraph (b) of Article 166A and replacing it with the following new paragraph (b): to the extent permitted by law, it is made available on a website provided that, in the case of any notice to Members or any documents to be sent to Members under the provisions of Article 125, the Company shall contemporaneously publish the notice or (as the case may be) an abridged set of the balance sheet and income statement in one daily newspaper with nationwide circulation drawing attention to the website on which the notice and the full text of any other documents may be read, and the address to which a request for a hard copy of such documents may be submitted. To the extent permitted by law, upon such publication in the daily newspaper, the documents in question shall be deemed to have been sent to every Member or other person entitled to receive a copy of the documents.” 2. To authorise the Directors of the Company to allot and issue shares of the Company for purposes of raising capital and, accordingly, the following resolution is proposed to be passed as a SPECIAL RESOLUTION of the Company: “The Directors of the Company be and are hereby authorised to allot and issue shares of the Company to such investors as they may approve in connection with any capital raising exercise of the Company, with the terms and conditions of such exercise to be determined by the Directors.” 3. To authorise the Directors of the Company to acquire or invest in the debt and/or equity capital of any local or foreign entity on such terms as the Directors shall determine. Accordingly, the following resolution is proposed to be passed as a SPECIAL RESOLUTION of the Company:
2 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notice of the Annual General Meeting continued Investing in Africa
“The Directors of the Company be and are hereby duly authorised to acquire or in any manner invest in the debt and/or equity capital of any subsidiary, affiliated company or other entity, whether local or foreign, on such terms as may be determined by the Directors provided however that the total consideration payable by the Company in respect of any such acquisition or investment shall not exceed KES 5,000,000,000 (five billion Kenya Shillings) in aggregate value in respect of any single transaction or series of transactions and the Directors are hereby authorised to settle such amount in cash or by the allotment and issue of shares of the Company or both (whether partial or otherwise). 4. To authorise the Directors of the Company to re-organise the debt and/or equity capital structure of the Company and its subsidiaries on such terms and in such manner as the Directors of the Company shall from time to time require and, accordingly, the following resolution is proposed to be passed as a SPECIAL RESOLUTION of the Company: “The Directors of the Company be and are hereby authorised to carry out such re-organisation of the debt and/or equity capital structure of the Company and/or its subsidiaries and/or other investments on such terms and in such manner as the Directors of the Company shall from time to time determine where such reorganisation does not involve the disposal or sale of assets or entities by the Group to a person outside the Group.” 5. To authorise the Directors of the company to dispose of the Company’s holdings or investments in any other entity including any subsidiary company or affiliate and the following resolution is proposed to be passed as a SPECIAL RESOLUTION for this purpose: “The Directors of the Company be and are hereby duly authorised to sell, transfer or otherwise dispose of any of its holdings or other investments in any entity including any subsidiary or affiliated company on such terms and on such conditions as may be determined by the Directors provided however that the total consideration payable in respect of any such sale or disposal shall not exceed KES 5,000,000,000 (five billion Kenya Shillings) in aggregate value in respect of any single transaction or series of transactions.”
BY ORDER OF THE BOARD
COMPANY SECRETARY
NB: In accordance with section 136(2) of the Companies Act (Cap.486) every member entitled to attend and vote at the above meeting is entitled to appoint proxy to attend and vote on his behalf. A proxy need not be a member. A form of proxy is enclosed and should be returned to the secretaries, P.O. Box 61120 00200 Nairobi, to arrive not later than 48 hours before the meeting or any adjournment thereof.
Date: Monday 16th April 2012
P.O. Box 61120 00200
NAIROBI
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 3 Board of Directors Investing in Africa
Mr. Zephaniah Gitau Mbugua, Chairman of the Board Mr. Mbugua is a graduate of Makerere University with a BSc in Chemistry and Mathematics. He is a successful serial entrepreneur, developing businesses and partnerships across Africa for the last 30 years. He is a founder member and Chief Executive Officer of Abcon Group of Companies, a leading distributor of industrial chemicals. He is also a director of Proctor & Allan EA Ltd, Real Insurance and Zeniki Investment Ltd.
Dr. Gachao Kiuna, Chief Executive Officer and Managing Director Gachao joined Trans-Century from McKinsey & Company in Johannesburg, where he was a member of the Office Leadership Group leading McKinsey’s Sub-Saharan Africa Practice. He was involved in advising corporate clients in emerging markets on corporate finance and strategy. He was also the principal consultant that led the McKinsey assignment to develop the Vision 2030 project for the Government of Kenya.
Gachao Joined McKinsey in 2003 after completing his PhD at the University of Cambridge, Corpus Christi College in the United Kingdom. Additionally he holds a First Class Honours BSc degree from Imperial College, London in Biochemistry and a PhD in Biotechnology from the Institute of Biotechnology in Cambridge.
Peter Kanyago, Director Mr. Kanyago is a fellow of the Institute of Certified Public Accountants of Kenya, member of the Institute of Certified Public Secretaries of Kenya and holds an MBA in Industrial Management. As an entrepreneur, he holds directorships in companies he has built, including East Africa Courier Ltd and East Africa Elevator Company (OTIS). He is the Chairman of Ecobank Kenya Ltd and Kenya Tea Development Authority (KTDA) Ltd, and also holds directorships at Kenya Tea Packers (KETEPA), Corporate Insurance Company Ltd and East African Cables Ltd. His contribution to the nation has been recognised in his being awarded Moran of the order of the Burning Spear (MBS) of the Republic of Kenya.
Joseph Karago, Director Mr. Karago holds a Bachelor of Architecture from the University of Nairobi. In his professional background, he has worked for Symbion International Architects (1987-1991) and later joined Plence International as Partner-in-charge of Design and Technical Co-ordination (1992-1995). His entrepreneurial interest saw him leave Plence International to set up his own practice, Karago & Associates Architects that he manages to date. Mr. Karago is chairman of Sajo Ltd and Mcensal Ltd and is very active in corporate social responsibility including acting as a member of the board of governors of Thomas Barnados Home and Chairman of the Adoptions Committee, Kenya Children’s Home.
4 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Board of Directors continued Investing in Africa
Robin Kimotho, Director Mr. Kimotho graduated from Makerere University with BA (Econ) First Class Honours and an MBA (Finance Major) from the University of Alberta. In 1986 he obtained a diploma in Investment Planning and Appraisal from the University of Bradford. In his professional career he has been a lecturer at the Faculty of Business Administration, Papua New Guinea University of Technology (1974 – 1979). Between 1979 and 1987 he worked for Kenya Commercial Bank as a consultant in the Business Advisory Services Division, and as manager of the Economics and Planning Division. In 1987, he moved to the Africa Project Development Facility (APDF) as an Investment Officer, where he worked in various countries in eastern and southern Africa up to 1995. He is a member of the Association of Financial Analysts.
Njeru Kirira, Director Mr. Kirira graduated with a Masters degree in Public Administration (MPA) from the University of Pittsburgh and BA (Hons) from Makerere University in Economics and Agricultural Economics. He is trained and experienced in Fiscal Affairs and Tax Administration and is currently a Managing Consultant with Global Economic Investment and Financial Consultancy Limited (GEIFIC Limited). In his professional career, he has been a long serving tax and fiscal policy administrator. He served in various capacities in the Treasury including, the Director of Fiscal & Monetary Affairs, and Economic Advisor to the Central Bank of Kenya before his appointment as the Financial Secretary to the Treasury. He has consulted with various local and regional organisations on economics and public administration, and He is also serves as a council member for Inoorero University in Nairobi.
Ngugi Kiuna, Director Mr. Kiuna graduated with a BSc Hons in Mechanical Engineering from the University of Portsmouth in the United Kingdom. He is currently the Managing Director of Maxam Limited, the distributor of Heineken and Phillip Morris across East Africa. His professional experience has involved working as a Managing Director of Holman Bros EA (John Deere) and as a Managing Director of Diversey (Unilever). His other directorships include BOC Gases Kenya Ltd, Proctor & Allan (EA) Ltd, UBA Bank (Kenya) Ltd and X & R Technologies (Xerox).
Carol Musyoka, Director Ms. Carol Musyoka has over 10 years of financial leadership including deal origination, structuring and execution, as well as credit risk and treasury management. She has extensive senior-level experience in banking and corporate finance, having previously been Chief Operating Officer of K-Rep Bank, Corporate Director of Barclays Bank and a Corporate Manager with Citibank Kenya. Carol received her Masters of Law degree from Cornell University, USA and holds a Bachelor of Law degree from the University of Nairobi. She is currently a director of BAT Kenya Ltd and Alliance Capital Partners as well as a Trustee at SOS Children’s Villages.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 5 Corporate Governance Investing in Africa
The Board of Directors of Trans-Century Limited is responsible for the governance of the company and is accountable to the shareholders, ensuring that the company complies with the law, the highest standards of corporate governance, and business ethics.
BOARD OF DIRECTORS
The Board consists of eight directors of which seven are non executive (including the board chairman) and one is executive (the chief executive officer). All non-executive directors on Trans-Century’s board are independent of management and have diverse skills, experience and competencies appropriate for effective management of the company’s business.
The board meets at least four times a year, with additional meetings when required. The directors are given appropriate and timely information so that they can maintain full and effective control over strategic, financial, operational and compliance issues. Except for the direction and guidance on general policy, the board has delegated authority for conduct of day-to-day business to the CEO.
The Board nonetheless retains responsibility in maintaining the company’s overall internal control on financial, operational and compliance issues. All our directors have also attended various corporate governance courses organized by accredited institutions. All non-executive directors are subject to periodic reappointment in accordance with company’s Articles of Association.
BUSINESS ETHICS
The directors attach great importance to the need to conduct the business and operations of the company with integrity and in accordance with internationally developed principles on good governance. The company adopts the best principles of good corporate culture that requires the directors and all employees to maintain the highest personal and ethical standards and to act in good faith and in the interest of the company. The company has developed and implemented a code of conduct that sets out guidelines and rules, which are based on good governance principles of:
• Full compliance with the law • Application of best accounting practices • Application of best business practices
EQUAL EMPLOYMENT OPPORTUNITIES AND COMMITMENT TO OUR PEOPLE
The company is committed to provide equal opportunity to all employees and applicants on the basis of merit. Our practice is to create a meritocratic culture in all our businesses across the African continent.
COMMITTEES OF THE BOARD
The board has three standing committees which meet regularly under the terms of reference set by the board.
Audit and Risk Committee
The board has constituted an audit committee which meets at least quarterly. It includes four non-executive directors Ngugi Kiuna, Peter Kanyago, Robin Kimotho and Carol Musyoka and the CEO. Its responsibilities include review of financial information, in particular half year and annual financial statements, compliance with accounting standards, liaison with external auditors, remuneration of external auditors and maintaining oversight on internal control systems. Other responsibilities are to receive and consider the company’s annual budget. The committee is guided by a charter from the board which outlines its mandate. The head of corporate finance and strategy, head of finance and group internal auditor are regularly invited.
Strategy and Investment Committee The committee meets regularly, typically bi-monthly, and it includes two non-executive directors Zephaniah Gitau Mbugua and Ngugi Kiuna and the CEO. The main responsibility of the committee is to chart the strategy of the company and to oversee implementation of strategic decisions of the board. The head of corporate finance and strategy, and head of finance are regularly invited.
Nominations and Remuneration Committee
The committee meets at least quarterly and includes, three non-executive directors Zephaniah Gitau Mbugua, Joseph Karago and
6 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Corporate Governance continued Investing in Africa
Njeru Kirira and the CEO. The main responsibilities of the committee are to nominate TCL and subsidiary companies’ board members, appointment of TCL and subsidiary CEO’s, and succession planning. The committee also determines the company’s remuneration policy for employees, management and non-executive directors. The committees submit their findings and recommendations at the quarterly board meetings.
DIRECTORS EMOLUMENTS AND LOANS
The aggregate amounts of emoluments paid to the directors for services rendered during this financial year ended 2011 are disclosed in the financial statements. Neither at the end of the financial year nor at any time during the year did there exist any arrangement to which the company is a party, whereby a director might acquire benefits by means of acquisition of the company’s shares. All business transactions with the directors or related parties are carried out at arm’s length. Such transactions have been disclosed.
RISK MANAGEMENT AND CONTROLS
The board recognizes that managing risk to ensure an optimal mix between risk and return is an integral part of achieving corporate goals. The board has put in place processes for identifying, assessing, managing and monitoring risks to ensure that the company’s business objectives are achieved and risks mitigated. The company has defined procedures and financial controls to ensure the reporting of complete and accurate accounting information. They cover systems for obtaining authority for major transactions and for ensuring compliance with the laws and regulations that have significant financial implications. The Board approves company policies and procedures whereas the management implements the Board’s risk management policy. Procedures are also in place to mitigate investment risks and manage the risk profile of the investment portfolio.
A comprehensive management accounting system is in place providing financial and operational performance measurement indicators. Regular senior management meetings are held to monitor performance and to agree on measures to drive improvement.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 7 Chairman’s Statement Investing in Africa
Ugandan were not spared, with inflations rates peaking at 19.8% and 30% respectively.
Whilst traditionally, the region has learned how to deal with continually fluctuating currencies, the volatility and rapid depreciations, made for challenging times in most industries and even imposed significant hardships on consumers, impacting disposable incomes, given the import requirements of food and fuel. Despite the volatility, the regional economies continued to grow, with Kenya achieving a GDP growth rate of 4.3% for the 9 months ended September 2011, while Tanzania and Uganda grew at rates of 6.3% and 5.4% respectively, over the same period.
The region has also experienced positive news in respect of a burgeoning natural resources industry, with:
(i) The signing of the Uganda oil production sharing agreement; (ii) The discovery of gas resources in Southern Tanzania and Mozambique; (iii) The discovery of hydrocarbons in Kenya, and increased exploration activities in the East Africa region; It gives me great pleasure to present to you the annual report (iv) Development of new gold mines in Eastern Congo, Tanzania and audited financial statements for the financial year ended 31 and Kenya; December 2011. (v) Increased development and exploration of industrial minerals at the coast of Kenya and Eastern Uganda; and Overview of group performance (vi) Increasing optimism of developing coal fields in the Eastern The financial year ended December 2011 was a successful year province of Kenya for TransCentury, which saw the company achieve 57% growth in Revenues and 38% growth in profit before tax, to KES10.7 billion With our growing populations and with the continued growth of and KES 869 million, respectively, while the company shareholder the traditional sectors of the region, together with the potential funds increased to KES 8.7 billion. boost of the natural resources finds, we remain committed to the market opportunities within our 3 key infrastructure pillars– Overview of the business environment Power, Transport & Engineering.
The backdrop to this growth in the company was a challenging Capital Structure macroeconomic environment, largely led by continued uncertainty in the global economy, principally in the Eurozone Since the beginnings of TransCentury, we had planned to become area, which remains a key and influential economic partner of a publicly listed group with aspirations of Investing in Africa. In the Eastern Africa region. The region experienced volatility in 2011, we stayed true to these guiding principles by: exchange rates and interest rates throughout the year and was further impacted by the effects of high levels of domestic (i) Listing by introduction on the Nairobi Stock Exchange inflation. The Kenya Shilling, for instance, weakened from KES (Bloomberg Ticker - TCL:KN); 78 KES per USD to KES 107 per USD, before strengthening to KES (ii) Launching our USD75 million convertible bond programme, 82 per USD by end of the year. The other East African currencies which is listed on the Stock Exchange of Mauritius and, due also suffered from the same trend; The Tanzania Shilling and to enjoying Eurobond status, trades in the European markets Ugandan Shilling weakened by 20% and 23% respectively, before on the Euroclear and Clearstream platforms (a first in Eastern actions by the Central Banks helped stabilize the rates. Inflation and Central Africa); Zephaniahrates inGitau the Mbuguaregion also increased, with Kenya moving from 5.4% (iii) Transformational investments in respect of Civicon and Chairmanin January of the Board to peak at 19.7% in November 2011. Tanzania and Pende Electrical; and
8 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Chairman’s Statement continued Investing in Africa
(iv) Completion and first drawdown of the USD164 million Rift Valley Railways debt financing package, as well as the injection of the USD82 million of equity capital
Furthermore, in light of the positive performance for the year and the positive outlook for 2012, the board of directors proposes a dividend of KES 0.25 per share, a 25% increase on the previous year.
Appreciation As we embark on an exciting 2012, I am again honoured to be in a position to be thanking the shareholders of the company for the continued support and commitment. I extend a warm welcome to all the new investors in the Group, who joined after the listing of the ordinary shares on the Nairobi Stock Exchange, as well as the institutional shareholder base that has invested by way of the convertible bond.
My fellow board members deserve a special vote of thanks, for their wise counsel and availability as we have deliberated on the weighty issues impacting our performance as well as the various transformational changes that we have engaged.
The members of the Group’s staff performed outstandingly this year, yet again, in terms of their dedication, initiative, drive and passion. On behalf of the board and shareholders I say, “Asante Sana” and wish them all the best on path ahead in 2012.
Zephaniah Gitau Mbugua Chairman
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 9 Chief Executive’s Statement Investing in Africa
Group Performance TransCentury continued the historical growth trajectory with an overall increase in revenues from KES 6.8 billion to KES 10.7 billion and Profit Before Tax up from KES 630 million to KES 869 million. Additionally, the group’s total assets grew 93% to KES 21.7 billion and NAV grew 117% to KES 11.5 billion.
REVENUES
10.7bn 57% 6.8bn
2010 2011
Dear Shareholders: The financial year ended December 2011 was a landmark year OPERATING PROFIT for TransCentury, which saw the company: 1.6 bn 59% 1.0 bn • List on the Nairobi Stock Exchange; • Issue the first ever listed Convertible Eurobond by an East African issuer; and 2010 2011 • Make transformative acquisitions to bolster our Power and Engineering Divisions
With this corporate activity, TransCentury is even better positioned to take advantage of the market opportunity in
infrastructure across the region, which in our experience PROFIT BEFORE TAX continues to display significant under-penetration in terms of 0.9 bn 38% service delivery. 0.6 bn
TransCentury has continued to expand its geographic coverage with a presence in 14 countries across East, Central and Southern Africa as at December 2011. This physical presence is bolstered 2010 2011 by cross-border trade into the neighboring countries.
The growth of revenues and profits occurred in a back-drop of continued global economic turbulence, which given the increasing inter-linkages in the global economy has an impact on the domestic economies in which we operate. As such, Eastern Africa saw significant foreign exchange and interest rate volatility. Nevertheless, the underlying factors that drive growth in our target sectors remained strong, despite increased caution by players across industry:
• Residential and commercial developments continued in
the main industrial centres such as Nairobi, Dar es Salaam,
10 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Chief Executive’s Statement continued Investing in Africa
Kampala, Kigali and Juba. This trend was mirrored in the secondary urban areas, many of which are showing faster growth rates than capital cities or historical industrial hubs. We view the coming county government structure in Kenya, as having the potential to create even more demand. • The utilities have continued to roll-out transmission and distribution networks, as they relentlessly achieve their stated objectives of addressing the low access to electricity across the region. Kenya Power, for instance, increased connections by 389,000 to 1.7 million in 2011 • Increasing urbanisation of populations and industrialisation is increasing demand for electricity. This growth is outstripping growth in power generation capacity. This however, is being mitigated by the admirable execution of new power generation projects across the region as the utilities race to close the gap • Import cargo continues to grow, particularly at the Mombasa port and so there is increased pressure on the road infrastructure and a strengthening case for the railway • The recent discovery of natural resources across the region is creating near-term construction activity to develop these newly- found blocks into producing areas and in the medium- to long-term will result in economic growth as the region benefits from the commercialisation of these finds
Meanwhile, the group experienced balance sheet expansion, with total assets growing from KES11.2 billion in 2010 to KES21.7 billion in 2011.
ASSETS NAV1
21.7 bn 11.5 bn 93% 11% 11.2 bn 5.3 bn
2010 2011 2010 2011
Note: 1. NAV includes TC Mauritius Convertible Bond.
Performance by Division
TRANS-CENTURY LTD.
TRANSPORT ENGINEERING CONSUMER POWER
AFFILIATED HOLDINGS
Business overview: Power TransCentury’s Power Division manufactures and distributes electrical cables, components and transmission equipment, across the following product range: • Copper Cables: Interior power cables for residential, commercial and industrial developments, as well as exterior armoured cables for large-scale distribution of power • Aluminium Cables: Transmission and distribution cables • Specialty Cables: Mission-critical applications such as instrumentation, mining, oil & gas, airports and security • Fibre Optic Data Cables: Interior and exterior applications • Transmission Equipment: Transformers and Switchgear
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 11 continued Investing in Africa Chief Executive’s Statement
Financial Performance
REVENUES EBIT
7.7 bn 368 mm 5.5 bn 40% -66% 123 mm
2010 2011 2010 2011
The division had 40% growth in revenues, from KES 5.5 billion to KES 7.7 billion, but experienced a decline in profitability to KES123 million.
Revenue growth arose from increased volumes across all key segments, with Copper growing 6%, Aluminium growing 25% and Transformers & Switchgear growing 102%. Revenues of East Africa Cables alone grew from KES 3.6 billion to KES 4.9 billion on account of the continued construction activity in Eastern Africa and grid roll-outs by the utilities. EAC continued to build its strong market positioning, driven by the quality of its products as well as strong awareness from the “Wire si Wire” campaigns which led to EAC achieving “Superbrands” status.
The impressive revenue growth at East African Cables, resulted in a profit uplift, as well as the benefits from the turn-around of the Tanzanian operations, which had been challenged in the previous year. Overall, EAC delivered an EBIT of KES 577 million up from KES 303 million in the previous year. Nevertheless, even this impressive performance was tempered by the foreign exchange volatility experienced in the year. Whilst the group has traditionally been able to pass on the impact of commodity price increases, the rapid depreciation impacted existing inventories. It should be noted that TSH, KES and USH depreciated -27% in 2011 and rallied in the year to recover at -6% compared to opening of the year. The impact of this was felt most strongly by the Transformer & Switchgear segment.
Kewberg’s revenues remained relatively flat year-on-year, with South Africa’s main infrastructure projects being delayed as well as general challenges with labour across the metal industry in South Africa, including a general strike of workers that led to production shut-down, and eventually culminated in a negotiated industrial settlement that saw the cost of unionised staff increase. This undoubtedly had a negative impact on the company’s earnings.
In response to this, the Division’s management team rallied to manage this situation as best as practicable through price management and cost cutting, including retrenchment exercises in Tanzania, Kenya and South Africa.
We indicated to shareholders in 2010 that the Company invested in a copper plant in the DRC and in 2011 we acquired a new business in Zambia, entering markets where we see large potential for future growth. Both these entities are in the ramp-up phase which we have planned for. As such, we have continued to expense investments in DRC and Zambia, which impacted the Division’s earnings in 2011.
Investing in the future In 2011, the Power Division invested KES 111 million of capex. This is lower than in previous years, when as you may recall, we tripled capacity across the Division, as we viewed 2011 and 2012 as consolidation years. Nevertheless this reflects continued commitment to positioning the business for the future.
Outlook We expect continued organic growth within the Power division, as we continue to see strong demand, particularly in copper cables. Near-term opportunities include:
12 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Chief Executive’s Statement continued Investing in Africa
• Continued grid roll-out by the utilities • Increased spending at the county-level in Kenya as the newly devolved government structure is implemented • New phases of successful large-scale commercial and residential developments, as well as the development of greenfield sites. This sector offers significant promise with ambitious projects including Konza City, Tatu City, Migaa, Thika Greens, Longonot Park, Aberdares and Vipingo Ridge • Expected improvement of macro-economic conditions throughout the year, as projected by the World Bank, should ensure continued growth in the real estate and construction industries
TRANS-CENTURY LTD.
POWER ENGINEERING CONSUMER TRANSPORT
AFFILIATED HOLDINGS
Business Overview: Transport The Transport Division comprises TransCentury’s 34% shareholding in Rift Valley Railways (RVR), the 25-year concession to operate the Kenya-Uganda railway. The railway line begins at the port of Mombasa, and runs along the Northern Corridor, through most key urban areas in Kenya including Nairobi and onwards to Uganda’s capital city of Kampala and then to the west of Uganda, where the oil fields are situated.
Financial Performance In 2011 the company kicked off the turnaround effort aimed at increasing capacity of the railway, with the following being the key milestones: • Signing and first drawdown by RVR of the $164 million debt package in December 2011 • USD82 million capital injection by the shareholders • Final appointments of key management positions
Investing in the Future RVR has begun its USD 287 million 5-year turnaround programme, with the first projects being : • Track improvement • Wagon refurbishment • Locomotive refurbishment • IT Systems upgrades
Outlook The outlook for RVR is very promising given progress that we achieved in 2011. Demand for the railway continues to be strong, with Mombasa port posting growth, with container traffic posting an increase of 12.5%. Though the railway only evacuates 8% of port traffic, the expected turnaround process is aimed at tripling the capacity of the railway, and increasing the railway’s contribution to 25% of current port traffic within the next five years.
With the drawdown of financing and the capital investment by shareholders, RVR now has the capital it needs to execute on the turnaround plan. The plan will go a long way in improving transport efficiency and facilitating economic growth within the Northern Corridor.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 13 Chief Executive’s Statement continued Investing in Africa
TRANS-CENTURY LTD.
POWER TRANSPORT CONSUMER ENGINEERING
AFFILIATED HOLDINGS
Business Overview: Engineering TransCentury’s Engineering Division historically distributed and serviced weighing equipment, video-jet printers and generators for the Avery, Video-Jet and Power Source-Perkins brands, respectively.
We have made the following inorganic additions to the Division: 1. Investment in Civicon, a leading mechanical and civil engineering contractor and out-of-gauge logistics operator with a customer base in downstream oil and gas, upstream oil and gas, power generation, manufacturing and roads authorities. 2. Exclusive distribution agreement for SDMO generators in Tanzania
Financial Performance
REVENUES EBIT
2.0 bn 655 mm 395% 907% 0.4 bn 65 mm
2010 2011 2010 2011
Revenue and earnings grew in the division through a combination of organic business and the investment in Civicon. The market for weighing equipment and video jets continues to be stable as these are common staples of the manufacturing industry. Whilst the incoming engineering business had a strong year across its project related activities across the region.
Investing in the Future TransCentury made a large investment to bolster the Engineering division in 2011 by investing in Civicon, driven by our belief in the long term growth prospects of the regional infrastructure opportunity. The investment positions TransCentury to actively participate in infrastructure development across the region going forward.
Outlook Demand for Engineering remains strong, as evidenced by a strong order book for 2012, driven by the following: • Development of power generation and transmission facilities in the region • Investment by governments in the region to develop new roads and maintain existing ones • Investment by the private sector in oil storage facilities across the region • Exploration for oil and gas in the region – particularly in Tanzania, Uganda and Northern Kenya • Development of mining in the DRC and Tanzania
14 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Chief Executive’s Statement continued Investing in Africa
TRANS-CENTURY LTD.
POWER TRANSPORT ENGINEERING CONSUMER
AFFILIATED HOLDINGS
Business Overview: Consumer Through Chai Bora, TransCentury’s Consumer division blends, packs and distributes high quality tea and herbal infusions across Tanzania. The Chai Bora brand is currently the market leader in Tanzania and continues to benefit from strong growth in Tanzania’s per capita tea consumption. The company was the first ISO 22000 certified tea blender in the region, and remains the only such blender in Tanzania as a mark of quality.
In 2011, the business made positive strides in its regional expansion, entering the Kenyan market with tea and herbal infusion products now sold in Uchumi, Chandarana and Healthy U retail outlets.
Financial Performance
REVENUES EBIT 114 mm 1.0 bn -9% 103 mm 0.9 bn 7%
2010 2011 2010 2011
Our Consumer Division continued its positive contribution to the group profitability, with revenues growing from KES 0.9bn in 2010 to KES 1.0 bn in 2011 despite the plant operating now at near full capacity. Macro economic factors, including the volatile currency and increase in raw material and fuel costs, impacted margins. However, due to management’s intervention, the erosion was arrested (hence profitability is flat) and the company is expecting further uplift from cost-cutting:
• Reduction in staff numbers • Chang in packaging to reduce materials
Investing in the Future In 2011 Chai Bora launched a capital investment programme targeting the increase in production capacity, with the aim of increasing production efficiencies going forward. This will reduce capacity constraints in the future, and provide the company with ample capacity for growth.
Outlook The fundamentals for Chai Bora are strong, and give us confidence of the opportunity for Chai Bora. Key drivers of growth going forward are as follows: • per capita tea consumption dynamics: Tanzanian market consumes one third of tea per capita compared to Kenya. As distribution channels improve, per capita consumption of tea will converge closer to Kenya, which creates a tremendous opportunity for growth • Tanzania’s strategic position as a member of both the East African Community and the South African Development Community: Positioned to easily access two key trading blocs as attractive export market destinations. We believe that this positions Chai Bora well for continued regional expansion • Regional emphasis on infrastructure is opening up new distribution destinations: Investment in transport infrastructure in Tanzania and the region will open up new distribution destinations for Chai Bora and in turn drive organic growth of the business, primarily across SADC and EAC regions
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 15 Chief Executive’s Statement continued Investing in Africa
• Robust growth in Tanzania’s economy: The Country’s Per capita GDP has grown at an average of 10% Per capita GDP growth since 2003, making it one of the fastest growing nations globally
TRANS-CENTURY LTD.
POWER TRANSPORT ENGINEERING CONSUMER
AFFILIATED HOLDINGS
Business Overview: Affiliated holdings Within our Affiliated Holdings Division, TransCentury has: • Karen Land: 6 acre prime plot located in Nairobi’s affluent suburb of Karen. The property is strategically located next to the vibrant Karen Shopping Centre • Development Bank of Kenya: TransCentury owns a 10.7% stake in Development Bank of Kenya • Private Equity Funds: TransCentury holds strategic investments in various international Private Equity Funds, including Aureos, Helios and Business Partners International
Capital Structure The Company engaged in two major capital markets exercises in 2011:
• Convertible Bond Issuance TransCentury issued the first ever Listed Convertible EuroBond Programme by an East African issuer, continuing in the pioneering culture of the Group. The $75m Convertible Bond Programme is listed on Stock Exchange of Mauritius, and convertible into shares of TransCentury on the Nairobi Stock Exchange. The Convertible Bond Programme enabled TransCentury to raise the capital required to invest in our equity participation in RVR, as well as for our investments within the year.
• Listing of the ordinary shares, by way of introduction, on the Nairobi Stock Exchange Listing on the Nairobi Stock Exchange, by way of a listing by introduction, provided a broader shareholder base of shareholders with an opportunity to participate in the significant upside growth that the infrastructure sector provides.
Finance Costs TransCentury’s finance cost was also impacted by the volatility of Interest Rates in Kenya, as our local banks increased base lending rates. These two factors lead to the increase of TransCentury’s net finance costs from KES 343m in 2010 to KES 748m in 2011. Our Key concern in 2012 is to focus on our domestic debt profile as we are concerned about the interest rate environment and the impact on our business going forward.
Dividends The directors are recommending dividend of KES 0.25 (2010: KES 0.20) per share in view of the profitability we had in 2011 and as a reflection of the growth of the company.
Appreciation I would like to extend my appreciation to the board and shareholders of TransCentury for their continued support. I also want to thank our dedicated management and staff across all our divisions, for their hard work and quick response to market challenges and market opportunities.
I look forward to working together to achieve a successful and prosperous 2012.
Yours Sincerely, Dr. Gachao Kiuna Chief Executive Officer
16 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Directors, Officers and Administration Investing in Africa
DIRECTORS Zephaniah Mbugua (Chairman) Gachao Kiuna Peter Kanyago Joseph Karago Robin Kimotho Njeru Kirira Ngugi Kiuna Carol Musyoka
SECRETARY SHARE REGISTRARS Virginia Ndunge Cooperative Bank of Kenya Limited Emu Registrars Share Registration Services 3rd Floor, Suite 8, East wing 13th Floor, Cooperative Bank House The Greenhouse Haile Selassie Avenue Ngong Road P.O Box 48231 P.O Box 61120 00100 Nairobi GPO 00200 Nairobi City Square BANKERS National Industrial Credit Bank Limited AUDITORS P.O Box 44599 KPMG Kenya 00100 Nairobi GPO 16th Floor, Lonrho House Standard Street Commercial Bank of Africa Limited P.O Box 40612 P.O Box 30437 00100 Nairobi GPO 00100 Nairobi GPO
REGISTERED OFFICE Kenya Commercial Bank Limited Emu Registrars Chase Bank 3rd Floor, Suite 8, East wing P.O Box 66015-00800 The Greenhouse Nairobi, Kenya Ngong Road P.O Box 61120 Equity Bank 00200 Nairobi City Square P.O Box 75104-00200, Nairobi, Kenya
PRINCIPAL PLACE OF BUSINESS Standard Chartered Bank 7th Floor, Longonot Place 48 Westlands Road, Kijabe Street Nairobi, Kenya P.O Box 42334 P.O Box 30081 00100 Nairobi GPO 00100 Nairobi GPO
Co-operative Bank of Kenya Limited ADVOCATES P.O Box 48231 Muthaura Mugambi Ayugi & Njonjo Advocates 00100 Nairobi GPO 4th floor, West Wing, Capitol Hill Square Upperhill, Off Chyulu Road. Standard Bank (Mauritius) Limited P.O Box 8418 6th Floor, Medine Mews Building 00200 Nairobi City Square La Chaussee Street Nairobi Port Louis, Mauritius
Kaplan & Stratton Advocates Citi Bank NA 9th Floor, Williamson House P.O Box 30711 P.O Box 40111 00100 Nairobi GPO 00100 Nairobi GPO
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 17 Report of the Directors Investing in Africa
The directors have pleasure in submitting their report together with the audited financial statements for the year ended 31 December 2011, which disclose the state of affairs of the company and the group.
1. Activities
The group’s principal activity is that of investing in infrastructure and engineering opportunities across Africa.
2. Results
The results for the year are set out on page 21.
3. Dividends
The directors recommend the payment of a first and final dividend of KShs 0.25 (2010 - KShs 0.20) per share which amounts to KShs 68,487,571 (2010 – KShs 53,407,618).
4. Directors
The directors who served since 1 January 2011 are set out on page 17.
5. Auditors
The auditors, KPMG Kenya, continue in office in accordance with Section 159(2) of the Kenyan Companies Act.
6. Approval of financial statements
The financial statements were approved at a meeting of the directors held on 22 March 2012.
BY ORDER OF THE BOARD Secretary Date: 22 March 2012
18 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Statement of Directors’ Responsibilities Investing in Africa
The Directors are responsible for the preparation and fair presentation of the group and company financial statements of Trans- Century Limited set out on pages 21 to 67 which comprise the group and company statements of financial position at 31 December 2011, the group statement of comprehensive income, group and company statements of changes in equity and group statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.
The Directors’ responsibilities include: determining that the basis of accounting described in Note 2 is an acceptable basis for preparing and presenting the financial statements in the circumstances, preparation and presentation of financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.
Under the Kenyan Companies Act the Directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the group and the company as at the end of the financial year and of the operating results of the group for that year. It also requires the Directors to ensure the group keeps proper accounting records which disclose with reasonable accuracy the financial position of the group and the company.
The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act. The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the group and the company and of the group operating results.
The Directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.
The Directors have made an assessment of the group and the company’s ability to continue as a going concern and have no reason to believe the group and the company will not be a going concern for at least the next twelve months from the date of this statement.
Approval of the financial statements
The financial statements, as indicated above, were approved by the Board of Directors on 22 March 2012 and were signed on its behalf by:
______Director Director Zephaniah Mbugua Gachao Kiuna
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 19 Report of the Independent Auditors to the members of TransCentury Limited
KPMG Kenya Telephone +254 20 2806000 Public Accountants Fax: +254 20 2215695 16TH Floor, Lonrho House Email: [email protected] Standard Street Website: www.kpmg.co.ke P.O. Box 40612 00100 GPO Nairobi Kenya
We have audited the group and company financial statements of Trans-Century Limited set out on pages 21 to 67 which comprise the group and company statements of financial position at 31 December 2011, the group statement of comprehensive income, group and company statements of changes in equity and group statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Directors’ responsibility for the financial statements
As stated on page 19, the directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the financial statements give a true and fair view of Group and Company financial position of Trans-Century Limited at 31 December 2011, and of the group financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act.
Report on other legal requirements
As required by the Kenyan Companies Act we report to you, based on our audit, that:
(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit;
(ii) In our opinion, proper books of account have been kept by the company, so far as appears from our examination of those books; and
(iii) The statement of financial position of the company is in agreement with the books of account
Date: 22 March 2012
20 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Consolidated Statement of Comprehensive Income for the year ended 31 December 2011 2011 2010 Note KShs’000 KShs’000 Revenue 10,701,621 6,794,650 Cost of sales (7,676,422) (4,718,393)
Gross profit 3,025,199 2,076,257 Net other income 5 953,743 688,460 Distribution, administration and operating expenses (2,036,391) (1,348,889)
Profit before depreciation, impairment and finance cost 1,942,551 1,415,828
Impairment losses 6 11,990 (206,078) Depreciation and amortisation 6 (336,478) (235,479)
Results from operating activities 6 1,618,063 974,271 Finance income 7 59,875 90,024 Finance cost 7 (808,673) (433,710) Net finance cost (748,798) (343,686)
Profit before income tax 869,265 630,585
Income tax expense 8 (253,165) (162,323)
Profit after income tax 616,100 468,262
Other comprehensive income Revaluation of property, plant and equipment, net of deferred tax 196,859 534,206 Net change in fair value of available-for-sale financial assets (183,220) 429,499 Available-for-sale released on disposal of quoted shares (29,803) 134,962 Exchange differences on translation of foreign subsidiaries (139,162) 282,020
Other comprehensive income net of income tax (155,326) 1,380,687
Total comprehensive income for the year 460,774 1,848,949
Profit after tax is attributable to: Equity holders of the company 356,665 343,713 Non-controlling interest 259,435 124,549 Profit for the year 616,100 468,262
Total comprehensive income for the year attributable to: Equity holders of the company 210,377 1,328,552 Non-controlling interest 250,397 520,397 Total comprehensive income 460,774 1,848,949
BASIC EARNINGS PER SHARE - (KShs) 22(a) 1.32 1.29
DILUTED EARNINGS PER SHARE - (KShs) 22(a) 1.23 1.29
DIVIDEND PER SHARE - (KShs) 22(b) 0.25 0.2
The notes set out on pages 29 to 67 form an integral part of these financial statements.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 21 Consolidated Statement of Financial Position as at 31 December 2011 2011 2010 ASSETS Note KShs’000 KShs’000 Non current assets Property, plant and equipment 9 5,818,209 3,733,378 Investment property 10 474,003 345,502 Prepaid operating lease rentals 11 157,904 160,200 Intangible assets 12 2,054,194 371,129 Quoted investments 13(a) 50,135 93,625 Unquoted investments 13(b) 3,034,588 1,520,955 Investments in funds 14 767,553 914,268 Deferred tax asset 24(a) 74 2,720
12,356,660 7,141,777
Current assets Inventory 16 1,709,228 1,944,264 Trade and other receivables 17 4,874,472 1,913,833 Tax recoverable 42,542 29,520 Cash and cash equivalents 18 2,759,356 207,084
9,385,598 4,094,701
TOTAL ASSETS 21,742,258 11,236,478
EQUITY AND LIABILITIES
Capital and reserves (Pages 25 - 26) Share capital 19 136,975 133,519 Share premium 20 379,717 106,684 Revenue reserves 21(a) 2,757,355 2,407,642 Translation reserve 21(b) 241,201 367,556 Available-for-sale reserve 21(c) 234,659 447,682 Revaluation reserve 21(d) 620,572 434,989 Proposed dividends 22(b) 68,488 53,408
Total equity attributable to equity holders of the company 4,438,967 3,951,480 Non-controlling interest 2,580,702 1,341,974 Convertible bond 23 4,452,798 -
Total equity 11,472,467 5,293,454
Non current liabilities Deferred tax liability 24(b) 618,213 590,746 Provision for staff gratuity 29,477 25,533 Long term loan – non-current portion 25 2,965,304 2,755,239
3,612,994 3,371,518
Current liabilities Bank overdraft 18 263,953 234,504 Long term loan – current portion 25 1,337,928 814,737 Trade and other payables 26 4,646,125 1,386,879 Tax payable 379,335 104,060 Unclaimed dividends 101 38 Aureos Fund – other members 14 29,355 31,288
6,656,797 2,571,506
Total liabilities 10,269,791 5,943,024
TOTAL EQUITY AND LIABILITIES 21,742,258 11,236,478
The financial statements on pages 21 to 67 were approved by the Board of Directors on 22 March 2012 and were signed on its behalf by: ______Director: Zephaniah Mbugua Director: Gachao Kiuna The notes set out on pages 29 to 67 form an integral part of these financial statements. 22 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Company Statement of Financial Position as at 31 December 2011 2011 2010 ASSETS Note KShs’000 KShs’000 Non current assets Property, plant and equipment 9 9,026 7,965 Investment property 10 265,000 165,000 Intangible assets 12 31 100 Quoted investments 13(a) 50,135 93,625 Unquoted investments 13(b) 213,751 272,193 Investment in subsidiaries 13(c) 8,766,455 6,963,115 Investments in funds 14 767,553 914,268 Loans to subsidiaries 15 632,658 623,900 Deferred tax asset 24(a) 74 125
10,704,683 9,040,291
Current assets Trade and other receivables 17 469,649 223,483 Tax recoverable 4,147 4,147 Loans to subsidiaries 15 116,724 124,235 Cash and cash equivalents 18 - 40,509 590,520 392,374
TOTAL ASSETS 11,295,203 9,432,665
EQUITY AND LIABILITIES Capital and reserves (Pages 27 - 28) Share capital 19 136,975 133,519 Share premium 20 379,717 106,684 Revenue reserves 21(a) 577,831 628,754 Available-for-sale reserve 21(c) 7,530,266 6,010,514 Proposed dividends 22(b) 68,488 53,408 Total equity attributable to equity holders of the company 8,693,277 6,932,879
Total equity 8,693,277 6,932,879
Non current liabilities Long term loan – non-current portion 25 2,309,995 2,166,657
Current liabilities Bank overdraft 18 41,899 94 Long term loan – current portion 25 145,913 232,483 Trade and other payables 26 74,663 69,226 Unclaimed dividends 101 38 Aureos Fund – other members 14 29,355 31,288
291,931 333,129
Total liabilities 2,601,926 2,499,786
TOTAL EQUITY AND LIABILITIES 11,295,203 9,432,665
The financial statements on pages 21 to 67 were approved by the Board of Directors on 22 March 2012 and were signed on its behalf by:
______Director: Zephaniah Mbugua Director: Gachao Kiuna
The notes set out on pages 29 to 67 form an integral part of these financial statements.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 23 Consolidated Statement of Cash Flows for the year ended 31 December 2011
2011 2010 Note KShs’000 KShs’000 Net cash flows from operating activities
Profit before taxation 869,265 630,585 Adjustment for non-cash items (217,627) 174,374
Operating profit before working capital changes 651,638 804,959
Increase in trade and other receivables (1,384,693) (205,933) Decrease/(increase) in inventories 260,910 (472,128) Decrease in Aureos Fund - Other member (1,933) (4,301) Increase in trade and other payables 2,735,898 570,563 Increase in provision for staff gratuity 3,944 3,870
Cash generated from operations 2,265,764 697,030
Income tax paid (250,694) (157,965) Dividends paid to shareholders of the company (53,408) (14,764) Dividend paid to minority interest (109,090) (60,194)
Net cash flows from operating activities 1,852,572 464,107
Cash flows from investing activities
Purchase of property, plant and equipment (147,849) (627,341) Purchase of intangible assets (3,022) (1,003) Investments in subsidiaries, funds and other investments (4,051,122) (642,170) Proceeds from disposal of property, plant and equipment 9,739 9,929 Proceeds from disposal of quoted shares 14,258 590,441
Net cash flows from investing activities (4,177,996) (670,144)
Cash flows from financing activities
Net movement in loans and borrowing 118,960 (122,481) Net proceeds from issue of convertible bond 4,452,798 - Issue of additional shares 276,489 -
Net cash flows from financing activities 4,848,247 (122,481)
Net increase/(decrease) in cash and cash equivalents 2,522,823 (328,518)
Cash and cash equivalents at the end of the year 18 2,495,403 (27,420) Cash and cash equivalents at the beginning of the year 18 (27,420) 301,098
Net increase/(decrease) in cash and cash equivalents 2,522,823 (328,518)
The notes set out on pages 29 to 67 form an integral part of these financial statements.
24 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Consolidated Statement of Changes in Equity for the year ended 31 December 2010 - - - Total (73,340) (73,340) KShs’000 468,262 534,206 134,962 282,020 429,499 3,517,845 1,380,687 5,293,454 1,848,949 - - - (60,194) (60,194) (50,500) (30,205) interest 881,771 124,549 364,402 112,151 395,848 520,397 KShs ‘000 KShs 1,341,974 - Non-controlling
50,500 22,811 (13,146) 169,804 (13,146) 343,713 312,225 429,499 984,839 2,636,074 3,951,480 Total 1,328,552 KShs’000 KShs’000 ------53,408 - 40,262 53,408 13,146 (13,146) KShs’000 Proposed ------( 2,057) (53,408) (55,465) 343,713 reserves dividends 343,713 Revenue KShs ‘000 KShs 2,119,394 2,407,642 ------22,811 22,952 for sale for reserve (27,580) 429,499 447,682 475,262 475,262 Available KShs ‘000 KShs ------55,331 reserve 312,225 367,556 312,225 312,225 KShs ‘000 KShs Translation ------27,548 237,637 169,804 reserves 434,989 197,352 197,352 KShs ‘000 KShs Revaluation ------Share 106,684 106,684 premium KShs ‘000 KShs
------Share - - - - capital 2,057 2,057 131,462 133,519 KShs ‘000 KShs dividends 2010 1 January at Balance 2010 income comprehensive Total net of tax the year for after tax Net profit income Other comprehensive and plant of property, Revaluation equipment interest non-controlling from Transfer adjustment Exchange arising during the year Available-for-sale shares Release on disposal of quoted income other comprehensive Total income comprehensive Total with owners, Transactions directly in equity contributions recorded of the company owners and distributions to by Dividend paid 2009 Proposed Issue of additional shares transactions with owners, Total directly in equity recorded 2010 31 December at Balance part an integral of the financial statements. 67 form set out on pages 29 to notes The
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 25 Consolidated Statement of Changes in Equity for the year ended 31 December 2011
- - Total 3,456 (29,803) 616,100 196,859 273,033 113,991 460,774 (162,498) (139,162) (183,220) (155,326) KShs’000 1,151,450 5,293,454 7,019,669 - - - - - 4027 Non- (9,028) (54,039) (13,055) 259,435 interest 250,407 (109,090) (163,129) 1,341,974 1,151,450 KShs ‘000 KShs 2,580,702 controlling
- - Total 3,456 54,039 (53,408) (29,803) 356,665 192,832 273,033 277,120 210,367 (126,107) (183,220) (146,298) KShs’000 KShs’000 3,951,480 4,438,967 ------53,408 68,488 15,080 68,488 (53,408) KShs’000 Proposed ------(6,952) 61,536 (68,488) 356,665 356,665 reserves dividends Revenue KShs ‘000 KShs 2,407,642 2,757,355 ------(29,803) for sale for reserve 234,659 447,682 (183,220) (213,023) (213,023) KShs ‘000 KShs ------(248) (248) reserve 241,201 367,556 (126,107) (126,107) (126,107) Available KShs ‘000 KShs Translation ------(7,249) (7,249) 192,832 620,572 192,832 192,832 434,989 reserves KShs ‘000 KShs Revaluation ------Share 273,033 273,033 379,717 106,684 premium KShs ‘000 KShs
------3,456 Share ------capital 3,456 133,519 136,975 KShs ‘000 KShs 2011: 1 January at Balance 2011 net of tax the year for income comprehensive Total after tax Net profit income Other comprehensive and plant of property, Revaluation tax net of deferred equipment adjustment Exchange arising Available-for-sale during the year shares Release on disposal of quoted income other comprehensive Total income comprehensive Total of the with owners Transactions directly in equity recorded company, and distributions by Contributions of the company owners to Dividend paid dividends Proposed Issue of additional shares issue of shares from premium Share interest non-controlling from Transfer transactions with owners, Total directly in equity recorded of subsidiaryAcquisition with interest non-controlling during the year 2011 31 December at Balance part an integral of the financial statements. 67 form set out on pages 29 to notes The
26 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Company Statement of Changes in Equity for the year ended 31 December 2010
Share Share Available for Revenue Proposed capital premium sale reserve reserves dividends Total 2010: KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs’000 KShs’000
Balance at 1 January 2010 131,462 106,684 4,991,337 577,435 13,146 5,820,064
Total comprehensive income for the year net of tax
Profit for the year - - - 106,784 - 106,784
Other comprehensive income for the year
Net change in fair value of available-for-sale financial assets - - 976,617 - - 976,617 Available-for-sale reserve released on disposal of quoted shares - - 42,560 - - 42,560
Total other comprehensive income - - 1,019,177 - - 1,019,177
Total comprehensive income - - 1,019,177 106,784 - 1,125,961
Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the company Issue of ordinary shares 2,057 - - (2,057) - - Dividend paid - 2009 final - - - - (13,146) (13,146) Proposed dividends - - - (53,408) 53,408 -
Total transactions with owners for the year 2,057 - - (55,465) 40,262 (13,146)
Balance as at 31 December 2010 133,519 106,684 6,010,514 628,754 53,408 6,932,879
The notes set out on pages 29 to 67 form an integral part of the financial statements.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 27 Company Statement of Changes in Equity for the year ended 31 December 2011
Share Share Available for Retained Proposed capital premium sale reserve reserves dividends Total 2011: KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs’000 KShs’000
Balance at 1 January 2011 133,519 106,684 6,010,514 628,754 53,408 6,932,879
Total comprehensive income for the year net of tax
Profit for the year - - - 17,565 - 17,565
Other comprehensive income for the year
Net change in fair value of available-for-sale financial assets - - 1,549,555 - - 1,549,555 Available-for-sale reserve released on disposal of quoted shares - - (29,803) - - (29,803)
Total other comprehensive expense - - 1,519,752 - - 1,519,752
Total comprehensive income - - 1,519,752 17,565 - 1,537,317
Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the company New shares issued during the year 3,456 273,033 - - - 276,489
Dividend paid - - - - (53,408) (53,408) Proposed dividends - - - (68,488) 68,488 -
Total transactions with owners for the year 3,456 273,033 - (68,488) 15,080 223,081
Balance as at 31 December 2011 136,975 379,717 7,530,266 577,831 68,488 8,693,277
The notes set out on pages 29 to 67 form an integral part of the financial statements.
28 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
1. REPORTING ENTITY Trans-Century Limited is a limited liability company incorporated in Kenya under the Kenyan Companies Act, and is domiciled in Kenya. The consolidated financial statements of the company as at and for the year ended 31 December 2011 comprise the company and its subsidiaries (together referred to as the “Group”). The address of its registered office is as follows:
Emu Registrars 3rd Floor, Suite 8, East wing The Greenhouse Ngong Road PO Box 61120 00200 Nairobi City Square
2. BASIS OF PREPARATION
(a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Kenyan Companies Act
(b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: • Available-for-sale financial assets are measured at fair value; and • Investment property is measured at fair value. • Property and equipment are measured at revalued amounts.
(c) Functional and presentation currency These consolidated financial statements are presented in Kenya shillings (KShs), which is the company’s functional currency. All financial information presented has been rounded to the nearest thousand except where otherwise indicated.
(d) Use of estimates and judgments The preparation of consolidated financial statements in conformity with International Financial Reporting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the period. The estimates and assumptions are based on the directors’ best knowledge of current events, actions, historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The key areas of judgement in applying the entities accounting policies are dealt with in the respective accounting policy note or/and disclosure note.
(e) Determination of fair value A number of the Group’s accounting policies and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 29 Notes to the Consolidated Financial Statements
2. BASIS OF PREPARATION (continued) Valuation of unquoted investments and subsidiaries For equity instruments for which no active market exists, the group uses the price of a recent investment or the earnings multiple to estimate the fair value of these investments. Management uses estimates based on historical data relating to earnings of the investee company and other market based multiples in arriving at the fair value.
The primary assumption in employing the earnings multiple method is that the market has assigned an appropriate value to the benchmark company. The methodology and assumptions used for arriving at the market based multiples are reviewed and compared with other methodologies to ensure there are no material variances.
Valuation of quoted investments For quoted instruments, the fair value is determined by reference to their value weighted average price at the reporting date.
Valuation of investment property An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group’s investment property. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The values adopted in the financial statements are based on professional valuation, performed on a regular basis, by registered valuers.
Valuation of property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the professional valuation on the acquisition date performed by registered valuers on an open market value basis.
3. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below and have been consistently applied to all periods presented in these financial statements and have been consistently applied by Group entities:
(a) Revenue income recognition (i) Goods sold and services Sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and there is no continuing management involvement with the goods.
Revenue from services rendered is recognised in the statement of comprehensive income in proportion to the stage of completion of the transaction at the reporting date.
The revenue is stated net of Value Added Tax (VAT).
(ii) Dividends Dividend income is recognised in the statement of comprehensive income on the date that the Group’s right to receive payment is established.
(iii) Interest on deposits with financial institutions IInterest on deposits with financial institutions is accounted for on a time proportion basis in profit or loss using the effective interest method.
(iv) Discount on treasury bills Discount on treasury bills is credited to profit or loss on a straight line basis over the maturity period of the investment.
30 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. The consolidated financial statements include the company and its subsidiaries as follows:
2011 2010 Subsidiary Country of incorporation % % Cable Holdings Limited Kenya 94.8 94.8 East African Cables Limited Kenya 64.3 63.3 Avery (East Africa) Limited Kenya 94.4 94.4 Trans-Century Holdings (Pty) Limited South Africa 100.0 100.0 Tanelec Limited Tanzania 70.0 70.0 Crystal Limited Tanzania 100.0 100.0 Chai Bora Tanzania 95.0 95.0 TC Mauritius Holdings Limited Mauritius 100.0 100.0 Cable Holdings Mauritius Limited Mauritius 100.0 100.0 TC Engineering and Contracting Limited Mauritius 100.0 100.0 TC Railway Holdings Limited Mauritius 100.0 100.0 Democratic Republic of Cableries du Congo Sprl 100.0 100.0 Congo Safari Rail Co. Ltd Mauritius 100.0 100.0
(ii) Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Investment in associates and joint controlled entities are accounted for using the equity method and are recognised initially at cost.
(iii) Venture capital Investment in Rift Valley Railways (RVR) Investments Pty Limited has been accounted for as a financial asset with its fair value gains/losses being recognised in profit or loss in the period in which they occur. The investment in RVR is held through Safari Rail Company Limited, a company incorporated in Mauritius.
(iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
(c) Translation of foreign currencies (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 31 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Translation of foreign currencies (continued)
(ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Kenya Shillings at exchange rates at the reporting date. Foreign currency differences are recognised directly in equity.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in equity.
(d) Property, plant and equipment
Items of property, plant and equipment are stated at historical cost or valuation less accumulated depreciation and impairment.
Cost includes expenditure that is directly attributable to acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.
Subsequent expenditure is only capitalised when it is probable that the future economic associated with the expenditure will flow to the Group. Ongoing repairs and maintenance is expensed as incurred.
Depreciation is charged on a straight-line basis over the estimated useful lives of the assets. Land is not depreciated. The annual rates of depreciation used for the current and comparative periods are as follows:
• Freehold buildings 2% – 5% • Leasehold buildings 2% or over the lease period if shorter than 50 years on acquisition • Plant, machinery and equipment 5% - 13% • Furniture, fixtures, fittings, motor vehicles and computers 12.5% - 33% • Heavy commercial vehicles 12.5%
The assets’ residual values, depreciation methods and useful lives are reviewed and adjusted as appropriate at each reporting date.
(e) Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at fair value with any change therein recognised in profit or loss.
Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. When an investment property that was previously classified as property, plant and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings.
When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.
32 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Operating leases
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
(g) Impairment
(i) Financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised.
(ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. Good will is tested annually for impairment.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(h) Inventories
Cost of inventories includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 33 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Inventories (continued)
Work in progress and manufactured finished goods are valued at production cost including direct production costs (cost of materials and labour) and an appropriate proportion of production overheads and factory depreciation. The cost of inventory is based on the weighted average principle.
If the purchase or production cost is higher than net realisable value, stocks are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
(i) Trade and other debtors Trade and other receivables are stated at amortised cost less an estimate made for doubtful receivables based on a review of all outstanding amounts at year end.
(j) Employee benefits
(i) Defined contribution plan Some employees of the Group are eligible for retirement benefits under defined contribution plans provided through separate fund arrangements.
Contributions to the defined contribution plan are charged to the profit or loss as incurred.
(ii) Staff gratuity Unionisable staff for one of the subsidiaries are eligible to a gratuity upon retirement based on 23 days pay for each completed year of service at current salary. A provision is made in the financial statements for the estimated liability of such gratuity payable. Movements in the provision are accounted for in profit or loss.
(iii) Leave accrual The monetary value of the unutilised leave by staff as at year end is recognised as an expense in the year and carried in the accruals as a payable.
(iv) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
(k) Taxation
Tax on the operating results for the year comprises current tax and change in deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income. Current tax is provided on the results in the year as shown in the financial statements adjusted in accordance with tax legislation.
Deferred tax is recognized in respect of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes except differences relating to the initial recognition of assets or liabilities which affect neither accounting nor taxable profit.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the tax asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is calculated on the basis of the tax rates enacted at the reporting date. that it is no longer probable that the related tax benefit will be realised. Deferred tax is calculated on the basis of the tax rates enacted at the reporting date.
34 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprise of cash in hand, bank balances, and short term deposits net of bank overdrafts.
(m) Related party transactions
The group discloses the nature, volume and amounts outstanding at the end of each financial year from transactions with related parties, which include transactions with the directors, executive officers and group or related companies.
(n) Dividends
Dividends are recognised as a liability in the period in which they are declared. Proposed dividends are treated as a separate component of equity.
(o) Financial instruments
(i) Classification A financial instrument is a contract that gives rise to both a financial asset of one enterprise and a financial liability of another enterprise. These are classified as follows:
Financial assets at fair value through profit or loss: This category has two subcategories; financial assets held for trading, and those designated at fair value through profit or loss at inception. Financial instruments reclassified in this category are those that the Group holds principally for the purpose of short-term profit taking.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group intends to sell in the short term or that it has designated as at fair value through profit or loss or available-for-sale. Loans and receivables comprise receivables and balances due from Group companies.
Held-to-maturity assets are financial assets with fixed or determinable payments and fixed maturity that the Group has positive intent and ability to hold to maturity. Were the Group to sell other than an insignificant amount of held- to-maturity assets, the entire category would be tainted and reclassified as available-for-sale.
Available-for-sale assets are the non-derivative financial assets that are designated as available for sale or are not classified as held for trading purposes, loans and receivables or held to maturity. These include quoted and unquoted investments and investments in funds.
(ii) Recognition The Group recognises financial assets held for trading and available-for-sale assets on the date it commits to purchase the assets. From this date any gains and losses arising from changes in fair value of the assets are recognised.
Held-to-maturity, loans and receivables are recognised on the date they are transferred to the Group.
(iii) Measurement Financial instruments are measured initially at fair value, including transaction costs.
Subsequent to initial recognition all trading instruments and all available-for-sale assets are measured at fair value, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, including transaction costs, less impairment losses.
All non-trading financial liabilities, loans and receivables and held-to-maturity assets are measured at amortised cost less impairment losses.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 35 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(o) Financial Instruments (continued)
(iii) Measurement (continued) Amortised cost is calculated on the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.
Gains and losses arising from a change in the fair value of available-for-sale assets are recognised in other comprehensive income and presented within equity until the instrument is derecognised or impaired, at which time the cumulative gain or loss is recognised in profit or loss and trading instrument gains or losses are recognised in profit or loss in the period they arise.
(iv) Derecognition A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished.
(p) Intangible assets
(i) Goodwill/Premium on acquisition All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of acquisition and the fair value of the net identifiable assets acquired.
Goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment. Negative goodwill arising on an acquisition is recognised directly in profit or loss.
(ii) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives.
(iii) Brand Acquired assets are capitalised and stated at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over estimated useful life. The estimated useful life of the brand for the current and comparative periods is 20 years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(q) Offsetting
Financial assets and liabilities are offset and the net amount reported on the statement of financial position when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
(r) Provisions
A provision is recognised in the statement of financial position when the company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cashflows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specifics to the liability.
(s) Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year and changes in accounting policy.
36 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(t) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2011, and have not been applied in preparing these consolidated financial statements. These are summarised below and are not expected to have a significant impact on the consolidated financial statements of the Group:
• IFRS 9 ‘Financial Instruments’. IFRS 9 will become mandatory for the Group’s 2015 consolidated financial statements. • IFRS 10 ‘Consolidated Financial Statements’ (effective for annual periods beginning on or after 1 January 2013). • IFRS 11 ‘Joint Arrangements’ (effective for annual periods beginning on or after 1 January 2013). • IFRS 12 ‘Disclosure of Interests in Other Entities’ (effective for annual periods beginning on or after 1 January 2013). • IFRS 13 ‘Fair Value Measurement’ (effective for annual periods beginning on or after 1 January 2013). • IAS 19 ‘Employee Benefits (Amended)’ (effective for annual periods beginning on or after 1 January 2013). • IAS 27 (2011) Separate Financial Statements (effective 1 January 2013). • IAS 28 (2011) Investments in Associates and Joint Ventures (effective 1 January 2013). • Amendments to IAS 1 ‘Presentation of items of other comprehensive income’ (effective 1 July 2012). • Amendments to IAS 12 ’Deferred tax: Recovery of underlying assets statements’ (effective 1 January 2012) • Amendments to IFRS 7 ‘Disclosures – Transfer of financial assets’ (effective for annual period beginning 1 July 2011).
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview The Group and company has exposure to the following risks from its use of financial instruments: (a) Credit risk; (b) Liquidity risk; and (c) Market risk.
This note presents information about the Group and company’s exposure to each of the above risks, the Group and company’s objectives, policies and processes for measuring and managing risk, and the Group and company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
The board of directors has overall responsibility for the establishment and oversight of the Group and company’s risk management framework. The finance department identifies, evaluates and hedges financial risks.
The Board of Directors oversees how management monitors compliance with the Group and company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group and company.
(a) Credit risk Credit risk is the risk of financial loss to the Group and company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group and company’s receivables from customers. The carrying amount of financial assets represents the maximum exposure to credit risk: 2011 2010 KShs‘000 KShs‘000
Trade and other receivables 3,832,356 1,485,487 Cash and bank balances 2,759,356 207,084 Impairment losses The ageing of trade receivables at the reporting date was: Not past due 1,720,301 509,524 Past due 0-90 days 1,022,752 524,025 Past due 90-365 days 1,004,302 364,942 More than one year 289,745 262,950 4,037,100 1,661,441 Net impairment (204,744) (175,954)
3,832,356 1,485,487
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 37 Notes to the Consolidated Financial Statements
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Liquidity risk arises in the general funding of the company’s activities and in the management of positions. It includes both the risk of being unable to fund assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame.
The Group does not have access to a diverse funding base. Funds are raised mainly from its shareholders, banks and its own internal resources.
The Group strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities.
The Group continually assesses liquidity risk by identifying and monitoring changes in funding required to meet business goals and targets set in terms of the overall company strategy.
In addition, the Group holds a portfolio of liquid assets as part of its liquidity risk management strategy.
The table below shows the contractual maturity of financial liabilities:
2011: KShs’000 Due on demand 1 - 3 months 3 - 12 months 1 - 5 years Total Liabilities: Long term loans - 1,337,928 - 2,965,304 4,303,232 Bank overdraft 263,953 - - - 263,953 Trade and other payables - - 4,646,125 - 4,646,125 Aureos Fund – other members - - 29,355 - 29,355
Total financial liabilities 263,953 1,337,928 4,675,480 2,965,304 9,242,665
2010: Liabilities: Long term loans - 422,835 391,902 2,755,239 3,569,976 Bank overdraft 234,504 - - - 234,504 Trade and other payables - 532,321 854,558 - 1,386,879 Aureos Fund – other members - - 31,288 - 31,288
Total financial liabilities 234,504 955,156 1,277,748 2,755,239 5,222,647
38 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
(i) Currency risk The Group is exposed to currency risk through transactions in foreign currencies. The company’s transactional exposures give rise to foreign currency gains and losses that are recognised in profit or loss.
In respect of monetary assets and liabilities in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying foreign currencies at spot rates to enable the Group to meet its obligations. The Group’s exposure to foreign currency risk was as follows based on notional amounts in US dollars:
2011 2010 KShs’000 KShs’000
Cash and bank balances 2,734,100 42,184 Investments in funds 767,553 914,268 Unquoted investments 2,820,837 1,248,762 Bank overdraft (53,304) (37,146) Bank loan (1,814,697) (468,789) Shareholders loans - 674,425
Net statement of financial position exposure 4,454,489 2,373,704
The following significant exchange rates applied during the year:
Closing rate Average rate 2011 2010 2011 2010 KShs KShs KShs KShs
USD 85.07 80.75 88.7 79.26
Sensitivity analysis
A 10 percent strengthening of the Kenya shilling against the following currencies would have decreased profit or (loss) by amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010:
Profit or loss KShs’000 At 31 December 2011: USD (445,449)
At 31 December 2010: USD (237,370)
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 39 Notes to the Consolidated Financial Statements
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (c) Market risk (Continued)
(ii) Interest rate risk The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interest earning assets (including investments) and interest bearing liabilities mature or reprice at different times or in differing amounts. Risk management activities are aimed at optimizing net interest income, given market interest rates levels consistent with the company’s business strategies. The company does not have any significant interest rate risk exposures as currently all interest bearing borrowings and advances are at a fixed rate.
The table below summarizes the contractual maturity periods and interest rate profile of the Group’s financial assets and liabilities:
As at 31 December 2011: Due between Due between Effective 3 and 12 1 and 5 Non interest interest rate On demand months years bearing Total % KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 Assets Quoted investments - - - - 50,135 50,135 Unquoted investments - - - - 3,034,588 3,034,588 Investments in funds - - - - 767,553 767,553 Trade and other receivables - - - - 3,832,356 3,832,356 Cash and cash equivalents - - - - 2,759,356 2,759,356
- - - - 10,443,988 10,443,988
Liabilities: Bank loans 10-23% - 1,337,928 2,965,304 - 4,303,232 Bank overdraft 8-17% 263,953 - - - 263,953
Trade and other payables - - - - 4,646,125 4,646,125 Aureos Fund – other members - - - - 29,355 29,355
- 263,953 1,337,928 2,965,304 4,675,480 9,242,665
Interest rate sensitivity gap - (263,953) (1,337,928) (2,965,304) 5,768,508 1,201,323
40 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (c) Market risk (continued) (ii) Interest risk - continued
As at 31 December 2010: Due between Due between Effective 3 and 12 1 and 5 Non interest interest rate On demand months years bearing Total % KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 Assets Quoted investments - - - - 93,625 93,625 Unquoted investments - - - - 1,520,955 1,520,955 Investments in funds - - - - 914,268 914,268 Trade and other receivables - - - - 1,485,487 1,485,487 Cash and cash equivalents - - - - 207,084 207,084
- - - 4,221,419 4,221,419
Liabilities: Bank loans 10%-15% - 1,053,120 2,516,856 - 3,569,976 Bank overdraft 13%-14% 234,504 - - - 234,504 Trade and other payables - - - - 1,386,879 1,386,879
- - - - 31,288 31,288
- 234,504 1,053,120 2,516,856 1,418,167 5,222,647
Interest rate sensitivity gap - (234,504) (1,053,120) (2,516,856) 2,803,252 (1,001,228)
(d) Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new capital or sell assets to reduce debt.
The board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.
There were no changes in the Group’s approach to capital management during the year.
Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 41 Notes to the Consolidated Financial Statements
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
(e) Accounting classifications and fair values for financial assets and liabilities
The table below sets out the carrying amounts of each class of financial assets and liabilities, and their fair values:
31 December 2011: Loans and Available Other amortised Total carrying Fair receivables -for-sale cost amount value KShs‘000 KShs‘000 KShs‘000 KShs‘000 KShs‘000
Assets Quoted investments - 50,135 - 50,135 50,135 Unquoted investments - 3,034,588 - 3,034,588 3,034,588 Investment in funds - 767,553 - 767,553 767,553 Trade receivables 3,832,356 - - 3,832,356 3,832,356 Cash and bank balances 2,759,356 - - 2,759,356 2,759,356
Total assets 6,591,712 3,852,276 - 10,443,988 10,443,988
Liabilities Bank overdraft - - 263,953 263,953 263,953 Longterm loan - - 4,303,232 4,303,232 4,303,232 Creditor and accruals - - 4,646,125 4,646,125 4,646,125 Aureos Fund- other members - - 29,355 29,355 29,355
Total liabilities - - 9,242,665 9,242,665 9,242,665
31 December 2010: Loans and Available Other amortised Total carrying Fair receivables -for-sale cost amount value KShs‘000 KShs‘000 KShs‘000 KShs‘000 KShs‘000
Assets Quoted investments - 93,625 - 93,625 93,625 Unquoted investments - 1,520,955 - 1,520,955 1,520,955 Investment in funds - 914,268 - 914,268 914,268 Trade receivables 1,485,487 - - 1,485,487 1,485,487 Cash and bank balances 207,084 - - 207,084 207,084
Total assets 1,692,571 2,528,848 - 4,221,419 4,221,419
Liabilities Bank overdraft - - 234,504 234,504 234,504 Longterm loan - - 3,569,976 3,569,976 3,569,976 Creditor and accruals - - 1,386,879 1,386,879 1,386,879 Aureos Fund- other members - - 31,288 31,288 31,288
Total liabilities - - 5,222,647 5,222,647 5,222,647
42 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
(f) Valuation hierarchy
The valuation hierarchy, and types of instruments classified into each level within that hierarchy, is set out below:
LEVEL 1 LEVEL 2 LEVEL 3 Fair value determined using: Unadjusted quoted Valuation models with Valuation models using prices in an active market directly or indirectly market significant non-market for identical assets and observable inputs observable inputs liabilities Types of financial assets: Actively traded government Corporate and other Highly structured and other agency securities government bonds and OTC derivatives with loans unobservable parameters Listed derivative instruments Over-the-counter (OTC) Corporate bonds in illiquid derivatives markets Listed equities
Types of financial liabilities: Listed derivative Over-the-counter (OTC) Highly structured instruments derivatives OTC derivatives with unobservable parameters
The table below shows the classification of financial instruments held at fair value into the valuation hierarchy set out below as at 31 December 2011 and 31 December 2010:
31 December 2011: Level 1 Level 2 Level 3 Total KShs‘000 KShs‘000 KShs‘000 KShs‘000 Assets Quoted investments 50,135 - - 50,135 Unquoted investments - 3,034,588 - 3,034,588 Investments in funds - 767,553 - 767,553
Total assets 50,135 3,802,141 - 3,852,276
31 December 2010:
Assets Quoted investments 93,625 - - 93,625 Unquoted investments - 1,520,955 - 1,520,955 Investments in funds - 914,268 - 914,268
Total assets 93,625 2,435,223 - 2,528,848
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 43 Notes to the Consolidated Financial Statements
5. NET OTHER INCOME Group: 2011 2010 KShs ‘000 KShs ‘000 (Loss)/gain on sale of other quoted securities and dividend from other investments (1,298) 133,049 Gain on sale of property 3,289 158 Change in fair value of investment property 100,000 117,864 Sale of scraps 9,368 13,787 Other income 842,384 423,602
953,743 688,460
6. RESULTS FROM OPERATING ACTIVITIES Group 2011 2010 KShs ‘000 KShs‘000 Profit before tax is arrived at after charging/(crediting): Depreciation 322,684 221,658 Amortisation of prepaid operating lease rentals 4,661 4,650 Amortisation of intangible assets 9,133 9,171 336,478 235,479 Provision for stocks - 61,794 Debtors impairment loss (11,990) 144,284 Impairment (recovery)/ losses (11,990) 206,078 Directors’ emoluments - Fees – Group 36,277 46,765 - Others – Group 3,411 10,712 - Company – Fees 7,844 12,015 Auditors’ remuneration - Group and subsidiaries 19,782 14,470 - Company – Current year 2,800 2,797 Loss/(gain) on sale of other quoted securities and dividends from other investments 1,298 (133,049) Profit on disposal of property, plant and equipment (3,289) (158)
7. NET FINANCE COSTS Group 2011 2010 KShs ‘000 KShs ‘000 (a) Finance income
Interest income 13,735 6,564 Gain on exchange 46,140 83,460
59,875 90,024
(b) Finance costs
Interest paid (690,122) (352,124) Loss on exchange (118,551) ( 81,586)
(808,673) (433,710)
Net finance expense (748,798) (343,686)
44 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
8. INCOME TAX 2011 2010 KShs ‘000 KShs ‘000 Current tax: Charge for the year @ 30% 314,289 173,998 Prior years under provision 21,389 5,491 335,678 179,489
Deferred tax credit: Current year (Note 24) (83,334) (17,166) Prior year under provision (Note 24) 821 -
(82,513) (17,166) 253,165 162,323
The tax on the consolidated results differs from the theoretical amount using the basic tax rate as follows:
2011 2010 KShs ‘000 KShs ‘000
Accounting profit before tax 869,265 630,585 Tax at the domestic rate of 30% 260,780 189,175 Previous years under provision - Current tax 22,607 (1,928) - Deferred tax 821 - Effect of taxes in foreign jurisdictions* 169,159 108,828 Deferred tax not recognised 15,606 (32,294) Tax effect of non-deductible expenses and non-taxable income (215,808) (101,458)
Income tax expense 253,165 162,323
* Trans-Century Holdings Pty Limited operates in South Africa where corporate taxes are 28%, Trans-Century Mauritius Limited, Cable Holding Mauritius Limited, TC Railway Holdings Limited and Safari Rail Company Limited operate in Mauritius where the corporate tax rate is 15%.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 45 Notes to the Consolidated Financial Statements
198 Total (4,251) (10,701) (20,700) (23,260) 147,849 322,684 611,922 241,639 (106,237) KShs‘000 8,215,461 2,397,252 3,597,413 1,510,857 4,799,778 4,345,300 3,415,683 8,215,461 5,818,209 ------(4,894) 25,968 18,787 40,583 69,451 (47,445) 110,034 Work in Work 117,618 110,034 110,034 progress KShs‘000 KShs‘000 - - - (335) (192) (2,405) (1,703) 22,830 62,665 14,588 78,731 53,494 87,872 79,466 208,318 128,852 100,356 129,587 208,318 KShs‘000 KShs‘000 Furniture, equipment fittings and - - - (110) Motor (3,133) (2,923) (1,084) 33,271 32,415 41,293 378,681 216,728 vehicles 243,214 147,027 100,797 277,884 105,439 378,681 161,953 KShs‘000 KShs‘000
- (9,236) (6,819) (1,136) 61,528 71,728 (13,000) (50,410) 907,556 947,176 330,248 171,014 928,064 429,666 KShs‘000 KShs‘000 3,181,480 Plant and Plant 2,253,416 2,158,277 3,181,480 2,273,924 machinery - - (414) (1,729) 11,433 93,823 49,492 47,445 32,175 (13,673) (11,464) 162,297 954,010 558,481 land and KShs‘000 KShs‘000 2,436,594 1,437,793 buildings 1,878,113 2,436,594 Leasehold 2,274,297 ------198 9,951 (5,744) 59,501 55,294 (34,745) 573,665 353,470 438,301 169,911 220,195 573,665 514,164 land and Freehold KShs‘000 KShs‘000 buildings ------Heavy 45,224 877,094 vehicles - - - 922,318 KShs‘000 1,326,689 1,326,689 404,371 1,326,689 1,326,689 Commercial PROPERTY, PLANT AND EQUIPMENT PROPERTY, 1 JanuaryAt 2011 on acquisition acquired Assets of subsidiaries Additions Transfers Disposals - subsidiaries Revaluation differences Exchange 2011 31 December At Cost Valuation 1 JanuaryAt 2011 depreciation Accumulated on assets acquired the year for Charge Disposals - subsidiaries Revaluation differences Exchange 2011 31 December At 2011 31 December At Cost : Cost Comprising: Depreciation: Carrying value: 9. Group 2011:
46 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
- Total 9,090 5,823 (7,735) (6,141) 35,121 (14,329) (46,440) (32,415) 221,658 627,341 695,347 611,922 444,757 KShs‘000 3,025,145 4,345,300 2,576,140 4,345,300 1,769,160 3,733,378 ------201 (349) 261,447 117,618 220,971 117,618 Work in Work 117,618 (143,681) (103,353) progress KShs‘000 KShs‘000 - - - - 6 141 393 (324) (7,262) 14,547 62,296 87,872 17,102 87,872 25,576 53,494 34,378 84,211 43,585 (11,033) KShs‘000 KShs‘000 Furniture, equipment fittings and
- - - - (990) ( 815) 1,422 (2,230) (7,542) Motor 93,052 23,149 90,698 21,331 14,741 41,293 64,146 35,882 (16,527) 105,439 105,439 vehicles KShs‘000 KShs‘000
- - (930) 9,084 3,199 (2,817) 12,005 67,868 (17,205) 143,681 323,878 147,166 755,878 429,666 299,323 KShs‘000 KShs‘000 2,158,277 1,402,399 2,158,277 Plant and Plant 1,602,691 1,728,611 machinery
- - 4,320 2,516 (1,376) (1,324) (7,735) 24,372 32,175 26,730 (12,896) (12,384) (32,415) 373,859 635,021 845,139 KShs‘000 KShs‘000 1,437,793 1,437,793 1,063,934 buildings 1,405,618 Leasehold ------4,370 37,900 11,687 55,294 12,384 39,237 438,301 425,917 383,007 400,401 438,301 land and Freehold KShs‘000 KShs‘000 buildings
PROPERTY, PLANT AND EQUIPMENT (continued) PLANT AND EQUIPMENT PROPERTY, 1 JanuaryAt 2010 Additions Transfers investment to Transfer property - Subsidiary 10) (Note offs/disposals Write - Subsidiaries Revaluation adjustment-subsidiaryRevaluation differences Exchange 2010 31 December At Cost Valuation 1 JanuaryAt 2010 the year for Charge offs/disposals Write investment to Transfer property - Subsidiary 10) (Note - SubsidiaryRevaluation differences Exchange 2010 31 December At 2010 31 December At Cost or valuation: Cost Comprising: Depreciation: Carrying value: 9. Group 2010:
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 47 Notes to the Consolidated Financial Statements
9. PROPERTY, PLANT AND EQUIPMENT (Continued) Company Furniture, fittings and 2011: equipment KShs‘000 Cost or valuation: At 1 January 2011 14,153 Additions 3,233
At 31 December 2011 17,386
Depreciation: At 1 January 2011 6,188 Charge for the year 2,172
At 31 December 2011 8,360
Carrying value At 31 December 2011 9,026
2010:
Cost or valuation: At 1 January 2010 13,886 Additions 659 Disposals (392)
At 31 December 2010 14,153
Depreciation: At 1 January 2010 4,329 Charge for the year 2,043 Disposals (184)
At 31 December 2010 6,188
Carrying value At 31 December 2010 7,965
Revaluation The buildings of one of the subsidiaries, East African Cables Limited, was revalued in December 2009 by Lloyd Masika Limited, a firm of professional valuers on the basis of open market value for existing use. The increase in net carrying value as a result of the revaluation was credited to a revaluation reserve account.
All the property, plant and equipment of a subsidiary, East African Cables (Tanzania) Limited, were revalued in December 2010 by Lloyd Masika Limited, a firm of professional valuers on the basis of open market value for existing use.
The properties, plant and equipment of a subsidiary, Tanelec Limited – Tanzania were revalued in August 2007 by Lloyd Jones Limited, a firm of professional valuers on the basis of open market value for existing use and were used to determine fair values of these assets at the date of acquisition.
48 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
9. PROPERTY, PLANT AND EQUIPMENT (Continued)
Revaluation (Continued) The land and buildings of one of the subsidiaries, Avery (East Africa) Limited were revalued in December 2011 by an independent valuer from a firm of professional valuers on the basis of open market value for existing use. The resulting surplus was credited to revaluation reserve.
The property and plant and machinery of one of the subsidiaries, Kewberg Cables & Braids Proprietary Limited were revalued on 1 August 2011 and 13 October 2011, respectively, by an independent valuer, Chris van Rooyen, a professional valuer of Chris van Rooyen Property Valuers CC. The property valuation was performed using the income capitalisation method assuming (a) a capitalisation rate of 11.50% and (b) market related rentals. The plant and machinery valuation was performed using the replacement value approach assuming (a) A willing seller and a willing buyer exists, (b) the equipment will be freely exposed to the market, (c) a reasonable time would be allowed for the sale at a static price and (d) all values as indicated are net of removal costs, to determine the current value.
Security At 31 December 2011, properties of subsidiaries have been charged to secured banking facilities per Note 18.
10. INVESTMENT PROPERTY Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 Valuation At 1 January 345,502 205,000 165,000 145,000 Acquired on acquisition of subsidiary 30,422 - - - Transfer from property, plant and equipment (Note 9) - 24,680 - - Fair value changes 100,000 117,864 100,000 20,000 Currency changes (1,921) (2,042) - -
At 31 December 474,003 345,502 265,000 165,000
Revaluation The company acquired a piece of freehold land in 2006 at KShs 46,309,000 for investment purposes. The land is carried at Directors valuation of KShs 265 million based on prevailing market prices.
The investment property of the subsidiary, East African Cables Limited, comprises of residential properties that have been leased to a third party which have been revalued by Lloyd Masika Limited (Kenya and Tanzania) in 2010.
The properties are leased on a renewable annual lease.
11. PREPAID OPERATING LEASE RENTALS Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
At 1 January 160,200 167,415 - - Amortisation for the year (4,661) (4,650) - - Transfer to property and equipment (198) - - - Exchange adjustment 2,563 (2,565) - -
At 31 December 157,904 160,200 - -
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 49 Notes to the Consolidated Financial Statements
12. INTANGIBLE ASSETS
(a) Group 2011: Software Goodwill Brand Total KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 Cost At 1 January 30,944 277,371 99,764 408,079 On acquisition of Subsidiaries 14,671 1,978,362 - 1,993,033 Additions 3,022 - - 3,022 Exchange differences - (292,140) (14,970) (307,110)
At 31 December 48,637 1,963,593 84,794 2,097,024
Amortisation At 1 January 16,520 (635) 21,065 36,950 Amortisation 4,486 - 4,647 9,133 Exchange differences (26) (197) (3,030) (3,253)
At 31 December 20,980 (832) 22,682 42,830
Carrying value At 31 December 27,657 1,964,425 62,112 2,054,194
2010: Cost At 1 January 29,941 286,174 83,955 400,070 Additions 1,003 - - 1,003 Exchange differences - (8,803) 15,809 7,006
At 31 December 30,944 277,371 99,764 408,079
Amortisation At 1 January 13,524 - 13,227 26,751 Amortisation 3,797 - 5,374 9,171 Exchange differences (801) (635) 2,464 1,028
At 31 December 16,520 (635) 21,065 36,950
Carrying value At 31 December 14,424 278,006 78,699 371,129
50 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
12 INTANGIBLE ASSETS (Continued)
(b) Company 2011: Total KShs ‘000 Cost At 1 January and 31 December 337
Amortisation At 1 January 237 Amortisation during the year 69
At 31 December 306
Carrying value At 31 Dec 31
2010: Cost At 1 January and 31 December 337
Amortisation At 1 January 125 Amortisation during the year 112
At 31 December 237
Carrying value At 31 Dec 100
(c) Goodwill on acquisition of Trans-Century Holdings Pty Limited The goodwill recognised represents the excess of the business combination over the acquired business’ fair value of the identifiable assets and liabilities.
The business was acquired at 7 September 2007 and the fair values determined at that date were relied upon to support the carrying value of the goodwill recognised due to the proximity of the year end to the acquisition date. The carrying amount of the goodwill is reviewed annually on the basis of forecast profits of the cash generating assets and forecast sales of the products.
(d) Goodwill on acquisition of Crystal Limited The goodwill recognised represents the excess of the business combination over the acquired business fair value of the identifiable assets and liabilities.
Given the proximity of the year end to the acquisition of the business at 31 July 2008, the fair values determined at that date were relied upon to support the carrying value of the goodwill recognised. The carrying amount of the goodwill is reviewed annually on the basis of forecast profits of the cash generating assets and forecast sales of the products.
(e) Goodwill on acquisition of Civicon Group and Pende Group The goodwill recognised represents the excess of the business combination over the acquired business’ fair value of the identifiable assets and liabilities. The businesses were acquired on 30 September 2011 and 31 May 2011 for Civicon Group and Pende group respectively and the fair values determined at that date were relied upon to support the carrying value of the goodwill recognised due to the proximity of the year end to the acquisition date. The carrying amount of the goodwill is reviewed annually on the basis of forecast profits of the cash generating assets and forecast sales of the products.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 51 Notes to the Consolidated Financial Statements
12. INTANGIBLE ASSETS (Continued)
(f) Brand In acco rdance with IFRS 3 – Business Combinations, a valuation of the brand acquired was performed. This valuation was calculated as the present value of profits and KShs 1.122 billion (120 million Rand) turnover for 2008 and using 5% growth in revenues from 2009. The useful life of the brand has been assessed over 20 years. The discount rate of 20.6% was used.
13. INVESTMENTS Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 (a) Quoted shares
Movement during the year: At 1 January 93,625 321,822 93,625 143,796 Additions - - - - Disposals (13,687) (254,484) (13,687) (76,458)
Fair value (loss)/gain in the year (29,803) 26,287 (29,803) 26,287
At 31 December 50,135 93,625 50,135 93,625
Comprising: Cost 102,586 115,546 102,586 115,546 Cumulative fair value change (52,451) (21,921) (52,451) (21,921)
50,135 93,625 50,135 93,625
(b) Unquoted shares
RVR Investments (PTY) Limited (RVR) (Registered in Mauritius): 2,820,837 1,248,762 - -
Development Bank of Kenya Limited Cost 78,689 78,689 78,689 78,689 Cumulative fair value gain 135,062 193,504 135,062 193,504
213,751 272,193 213,751 272,193
3,034,588 1,520,955 213,751 272,193
Trans-Century Limited initially entered into a subscription agreement to acquire 20% of shares in RVR Investments (Proprietary) Limited (RVR) in 2006, a company organised under the Laws of Mauritius. The total investment for the initial 20% stake in RVR was US$ 9 million that has been paid in full. By 2011 the company has made additional investments in RVR beyond the initial US$ 9 million thereby increasing its shareholding in RVR from its initial 20% to 34%.
In 2010, a new lead investment Company was established, named KU Railways Holdings (KURH) in place of the initial lead investor Sheltam Rail Company (SRC) and under the amended concession agreements, the shareholders of RVR swopped their shares in RVR for shares in KURH in order to take up shareholding in the new lead investor. The Company therefore owns 34% of KURH, through its subsidiary undertaking Safari Rail Company Limited, a company organised under the Laws of Mauritius which is a wholly owned subsidiary of the Company. KURH (new lead investor) currently owns 100% of RVR (Concession Holding Company, through which the Company initially invested).
52 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
13. INVESTMENTS (Continued)
(b) Unquoted shares (continued)
In 2011 RVR kicked off the turnaround effort aimed at increasing capacity of the railway, with the following being the key milestones;(a)Signing and first drawdown by RVR of the $164 million debt package in December 2011 (b) Injection of USD82 million capital injection by the shareholders and (c) Final appointments of key management positions. The key activities are on course with the first projects being track improvement, wagon refurbishment, locomotive refurbishment and systems upgrades.
The investment in KURH/RVR is carried at fair value through profit or loss. The fair value as at 31 December 2011 was estimated through a valuation technique designed by the directors which assumed a blended average of various valuation methods namely; the Precedent transactions analysis, Discounted Cashflows (DCF) analysis, Internal Rate of Return (IRR) analysis and the comparable companies analysis. The concession agreement signed between RVR and the Governments of Kenya and Uganda remains in place and forms the basis of operation of RVR. Based on the foregoing factors the directors believe that the value of the investment in RVR is fairly stated.
(c) Investment in subsidiaries – Fair value/cost
Consolidated Consolidated Company Company 2011 2010 2011 2010 Cable Holdings (Kenya) Limited KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 94.8113% (2010 – 94.8113%): Cost - - 271,681 271,681 Cumulative fair value gain - - 2,026,972 2,431,628
- - 2,298,653 2,703,309
Avery Kenya Limited 94.4058% (2010 – 94.4058%): Cost - - 49,853 49,853 Cumulative fair value gain - - 606,651 718,399
- - 656,504 768,252
Tanelec Limited 70% (2010 – 70%): Cost - - 78,720 78,720 Cumulative fair value gain - - 853,043 733,516
- - 931,763 812,236
Trans-Century Holdings Pty Limited 100% (2010 – 100%): Cost - - 122,167 122,167 Cumulative fair value gain - - 771,568 843,662
- - 893,735 965,829
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 53 Notes to the Consolidated Financial Statements
13. INVESTMENTS (Continued) (c) Investment in subsidiaries – Fair value/cost (continued)
Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 Crystal Limited 97.5% (2010 – Nil): Cost - - 52 52 Cumulative fair value gain - - 854,175 740,334
- - 854,227 740,386
Trans-Century Mauritius Holdings Limited (100%) Cost - - 973,103 973,103 Cumulative fair value gain - - 2,158,470 -
- - 3,131,573 973,103
Total investment in subsidiaries - - 8,766,455 6,963,115
The company holds 94.8113% (2010 – 94.8113%) shareholding in Cable Holdings Limited which leads to an effective shareholding of 64.3614% (2010 – 63.3108) of East Africa Cables Limited (A company listed on the Nairobi Stock Exchange).
In the year 2005, the company acquired 94.4058% shareholding in Avery (East Africa) Limited.
In year 2007, the company acquired 70% shareholding in Tanelec Limited. The company holds 100% shareholding in Crystal Limited which was acquired in 2008. Crystal Limited in turn has a shareholding of 95% in Chai Bora Limited.
The company holds 100% shareholding in Trans-Century Mauritius Holdings, a company incorporated in Mauritius. The company was set up in 2009.
Fair value determined based on fair value policy per Note 2(e).
14. INVESTMENT IN FUNDS Group and Company The fund value has been disclosed at its fair value at the year end and fair value gains and losses have been accounted for through reserves. 2011 2010 KShs ‘000 KShs ‘000 Aureos East Africa (AEAF) 35,485 45,218 Aureos South Asia (ASAF) 172,196 194,692 Aureos China (ACF) 137,138 134,452 Business Partners International (BPI) 62,156 59,419 Helios Investors LP (Helios) 194,447 209,214 Helios Investors Kili Parallel LLP (KILI LLP) 166,131 271,273
767,553 914,268 Aureos East Africa Fund: The company has committed to invest US$ 500,000 in the fund. The investment at cost is allocated as follows: Total calls 35,485 45,218 Company portion (6,130) (13,930)
Attributable to other members 29,355 31,288
Calls made to 31 December 2011 amounted to US$ 230,925 (2010 - US$ 344,772).
The fair value of the investment is KShs 35,485,000 (2010- KShs 45,218,000).
54 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
- 2,613 3,115 TOTAL 11,000 46,321 39,946 914,268 598,223 276,099 767,553 914,268 (193,036) USD’000 - - - - 2,000 1.56% 271,273 145,597 125,676 KILI LLP 166,131 271,273 (105,142) 405 651 2,500 1.00% Helios 22,309 28,925 (37,076) (29,550) 209,214 209,839 194,447 209,214 BPI 427 570 1,500 (2,002) 59,419 12,835 43,814 17,607 62,156 59,419 10.64% (10,098) USD’000 USD’000 USD’000
582 815 ACF 2,000 5.48% 22,452 61,642 36,392 36,418 (19,766) 134,452 137,138 134,452 USD’000
500 269 155 757 6,029 AEAF 1.25% (4,506) 45,218 43,695 35,485 45,218 (10,490) USD’000
930 924 (785) 2,500 ASAF 2.94% 93,636 19,977 81,079 (21,711) 194,692 172,196 194,692 USD’000
INVESTMENT IN FUNDS (Continued) INVESTMENT 2011 and 2010 Commitment % holding Outstanding commitment: 2011 31 December At 2010 31 December At 1 JanuaryAt 2011 during the year Additions/(redemptions) gain/(loss) value Fair 1 JanuaryAt 2010 during the year Additions/(redemptions) gain/(loss) value Fair At 31 December 2011 31 December At 2010 2010 31 December At 14. 2011 Valuation: Valuation:
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 55 Notes to the Consolidated Financial Statements
Consolidated Consolidated Company Company 2011 2010 2011 2010 15. LOANS TO SUBSIDIARIES KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
Payable after 12 months: Trans-Century Holdings (Proprietary) Limited - South Africa - - 196,487 230,793 Crystal Ltd – Tanzania - - 436,171 393,107 Cable Holdings (Kenya) Limited - - - -
- - 632,658 623,900
Payable within 12 months: Chai Bora Ltd – Tanzania - - 73,710 73,710 Trans-Century Holdings (Proprietary) Limited - - 43,014 50,525
- - 116,724 124,235
16. INVENTORIES
Raw materials 642,159 652,852 - - Finished goods 551,598 466,012 - - Work in progress 201,299 368,099 - - Goods in transit 79,013 288,207 - - Spares and lubricants 172,310 160,762 - - Machines 40,981 34,172 - - Consumables 35,004 2,407 - - Containers 1,587 - - - Provision for obsolete and slow moving stocks (14,723) (28,247) - -
1,709,228 1,944,264 - -
17. TRADE AND OTHER RECEIVABLES
Trade receivables 4,037,100 1,661,441 - - Bad debts provision (204,744) (175,954) - -
3,832,356 1,485,487 - - Sundry receivables and prepayments 1,037,898 426,766 117,268 124,685 Staff receivables 4,218 1,580 - - Due from related parties (Note 27(h)) - - 352,381 98,798
4,874,472 1,913,833 469,649 223,483
18. CASH AND CASH EQUIVALENTS
Cash and bank balances 2,759,356 207,084 - 40,509 Bank overdraft (263,953) (234,504) (41,899) (94)
Total cash and cash equivalents 2,495,403 (27,420) (41,899) 40,415
Bank facilities The Group has entered into facilities with various banks which are secured by pledge over various marketable listed stock exchange shares including East African Cables Limited shares equivalent to KShs 4.7 billion (2010 – KShs 4.7 billion).
56 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
18. CASH AND CASH EQUIVALENTS (Continued) A subsidiary, East African Cables Limited, has entered into a facility with a bank and is secured over certain land and buildings for KShs 870 million (2010 - KShs 870 million) and a debenture over all assets of the company for KShs 2.1 billion (2010 - KShs 1. 84 billion). The bank facility comprises overdraft, term loan, letters of credit, bonds/guarantee and forex dealing.
A subsidiary, East African Cables (Tanzania) Limited, has a bank overdraft for working capital management and a short term post- import financing loan with Standard Bank (Tanzania) Limited. The facility is charged against the leasehold land and moveable assets of the subsidiary. The subsidiary also has a long term facility of KShs 44 million equivalent with Kenya Commercial Bank Tanzania Limited for the purchase of machinery. The loan is secured by the machinery purchased.
A subsidiary of Trans-Century Holdings (Proprietary) Limited, Kewberg Cables & Braids (Proprietary) Limited, has ceded and pledged to the Standard Bank of South Africa, all its rights in and to book debts and other debts and any claim, due or to become due to it. The loans at the subsidiary are secured over property, plant, equipment and current assets.
A subsidiary of Crystal Limited, Chai Bora Limited, has secured a medium term facility from CRDB Bank Limited; a USD 1,150,000 term loan and a TShs 2 billion overdraft facility. The loan and bank overdraft facility is secured by legal mortgage over industrial buildings, fixed and floating debentures over all the assets of the company and cross company guarantee and indemnity from Trans-Century Limited.
A subsidiary, Tanelec Limited, has a bank loan facility with Stanbic Bank Tanzania Limited which is due on May 2013 and attracts interest at 8.5%p.a. and a finance lease with respect to asset financing at the rate of 8.5%. The facility is secured with first charge over certain company assets, with a carrying value of TShs 2,767,012,500 and a corporate guarantee by Trans-Century Limited.
A subsidiary, Avery (East Africa) Limited, has a bank overdraft facility with Chase Bank (Kenya) Limited for KShs 100 million secured by its leasehold land and building. Interest is charged at base lending rate minus 1%.
A subsidiary, Safari Rail Company Limited, has entered into an interest free loan facility agreement of USD 6 million with Ambience Rail Company (Pty) Limited. This loan can only be used for the purpose of meeting capital requirements in Rift Valley Railways Company Limited. The loan is unsecured and repayable only out of dividends received or from the proceeds of sale of the company’s interest in the investee company.
19. SHARE CAPITAL 2011 2010 KShs ‘000 KShs ‘000 Group and Company
Authorised 600,000,000 (2010-400,000,000) ordinary shares of KShs 0.50 each 300,000 200,000 Issued and fully paid At 1 January 267,038,090 (2010 – 262,924,260) Ordinary shares of KShs 0.50 (2010 - KShs 0.50) each 133,519 131,462
New issue of 6,912,194 (2010 – 4,113,830) Ordinary shares of KShs 0.50 each (2010-0.50) each 3,456 2,057
At 31 December 273,950,284 (2010 – 267,038,090) Ordinary shares of KShs 0.50 (2010-0.50) each 136,975 133,519
Conversion of bond in 2011 The company issued a convertible bond in 2011 as detailed in note 23. The 6,912,194 additional shares in the year relates to conversion of bond valued at US$ 3,435,000.
In 2010, the company issued 4,113,830 new ordinary shares of KShs 0.50 each. The holders of shares are entitled to receive dividends declared from time to time and are entitled to one vote per share at annual and general meetings of the company.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 57 Notes to the Consolidated Financial Statements
20. SHARE PREMIUM Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
At 1 January 106,684 106,684 106,684 106,684
Conversion of convertible bond of 6,912,194 shares at conversion price of KShs 40 273,033 - 273,033 - At 31 December 379,717 106,684 379,717 106,684
21. RESERVES
(a) Revenue Reserves Revenue reserves relate to accumulated profits over the years which are distributable to shareholders.
(b) Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
(c) Available for sale reserve The available for sale reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investment is derecognised.
(d) Revaluation reserve The revaluation reserve relates to the revaluation of property, plant and equipment prior to its reclassification as investment property.
22. PROPOSED DIVIDENDS AND EARNINGS
(a) Basic and diluted earnings per share The calculation of basic earnings per share at 31 December 2011 was based on the profit attributable to ordinary shareholders of KShs 356,665,000 (2010 – KShs 343,713,000) and a weighted average number of ordinary shares outstanding during the year of 269,342,155 (2010 – 267,038,090). 2011 2010 KShs ‘000 KShs ‘000
Profit attributable to ordinary shareholders 356,665 343,713
Diluted earnings per share is calculated by adjusting the earnings and weighted average number of ordinary shares outstanding during the year for the effects of dilutive options and other dilutive potential ordinary shares.
The calculation of diluted earnings per share at 31 December 2011 was based on the profit attributable to ordinary shareholders of KShs 430,840,000 (2010 – KShs 343,713,000) and a weighted average number of ordinary shares outstanding during the year of 348,943,069 (2010 – 267,038,090).
58 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
22. PROPOSED DIVIDENDS AND EARNINGS (continued) (b) Proposed dividends 2011 2010 KShs ‘000 KShs ‘000
Balance brought forward 53,408 13,146 Final proposed for the year 68,488 53,408 Paid or transferred to liabilities in the year (53,408) (13,146) 68,488 53,408
Proposed dividends are accounted for as a separate component of equity until they have been ratified at an Annual General Meeting. During the year the directors paid the 2010 final dividend of KShs 53,407,618 and recommend a final dividend of KShs 0.25 per share amounting to KShs 68,487,571.
23. CONVERTIBLE BOND
During the year the group issued a United States Dollar (USD) denominated convertible bond through one of its subsidiary, TC Mauritius Holdings Limited. The total amount of the convertible bond issued was USD 54,270,000 and some of the bond holders converted their portion of the bond to ordinary shares during the year amounting to USD 3,435,000. The movement in the bond during the year is as follows:
2011 2010 KShs ‘000 KShs ‘000 At 1 January - - Issued during the year 4,729,287 - Conversion during the year (276,489) -
At 31 December 4,452,798 -
The terms of the convertible bond are as follows:
• Term of bond: 5 year, maturing on 25 March 2016.
• Interest rate: 6% per annum cash coupon paid annually and 6% per annum payment in kind to be paid at the end of 5th year should the Bond not be converted.
• The company has reserved 150,929,616 ordinary shares to cater for conversion of the bond into shares, of which 6,912,194 has been issued on conversion during the year.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 59 Notes to the Consolidated Financial Statements
- At 74 74 - 74 128 125 3,598 2,720 (1,006) KShs’000 31 December
------(20) (20) - KShs’000 Exchange difference
------(51) (51) income in other KShs ‘000 KShs Recognised comprehensive
- - - - 96 (51) (140) (149) 1,442 1,153 income through KShs’000 Recognised statement of statement comprehensive comprehensive
------(128) 1,131 (3,598) (2,595) KShs’000 Reclassification
At 29 125
(846) 128 3,598 2,156 2,720 1,587 277 (1,006) KShs’000 1 January
(ii) Company 2011: 2010: Deferred tax asset Deferred 2011: and equipment plant Property, Provisions losses exchange Unrealised 2010: and equipment plant Property, Provisions losses exchange Unrealised and equipment plant Property, and equipment plant Property, DEFERRED TAX (ASSET)/LIABILITY TAX DEFERRED (a) (i) Group 24 .
60 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
3 At 64,526 45,215 (6,519) (5,789) 685,107 660,680 (18,380) 618,213 590,746 (105,593) (110,291) 31 December
- 43 139 429 (644) 1,360 3,906 8,903 52,357 14,313 18,787 (44,213) Exchange difference
- - - - 71,666 71,666 206,008 206,008 in equity KShs’000 KShs’000 KShs’000 Recognised - - - - - 41 780 821 provision year Prior (over)/under
(773) (793) - 15,782 - 11,122 22,751 19,027 - 27,469 income (39,662) (18,809) - (83,334) (16,013) through (135,461) KShs ‘000 KShs statement Recognised
- - 2, 279 - - 34,693 (4,966) 32,006 KShs’000 acquisition Acquired on Acquired of subsidiary
------(128) - - 1,131 (3,598) (2,595) KShs’000 Reclassification
- At 48,744 64,526 (5,135) ( 5,789) 660,680 412,890 (18,380) (74,535) 590,746 381,964 (110,291) KShs’000 1 January gain provision exchange exchange
gratuity gratuity Deferred tax liability Deferred tax liability Deferred Deferred tax liability Deferred Group 2011: gratuity provision Staff Other and accruals provisions Prepayments gain exchange Unrealised and machinery plant Property, Staff Other and accruals provisions Prepayments Unrealised and machinery plant Property, 2010: DEFERRED TAX (ASSET)/LIABILITY (Continued) TAX DEFERRED (b) (i)
24.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 61 Notes to the Consolidated Financial Statements
Consolidated Consolidated Company Company 2011 2010 2011 2010 25. LOANS KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
Bank loans -Long term 2,965,304 2,777,047 1,709,699 1,823,067 -Short term 1,337,928 792,929 - - Loans from subsidiaries (Note 27(g)) - - 746,209 576,073
4,303,232 3,569,976 2,455,908 2,399,140
Payable after 12 months 2,965,304 2,755,239 2,309,995 2,166,657 Payable within 12 months 1,337,928 814,737 145,913 232,483
4,303,232 3,569,976 2,455,908 2,399,140
The bank loans are granted under the bank facilities per Note 18 above.
26. CREDITORS AND ACCRUALS Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
Trade creditors 1,904,611 1,137,194 - - Sundry creditors 2,741,514 249,685 74,663 69,226
4,646,125 1,386,879 74,663 69,226
27. RELATED PARTIES TRANSACTIONS
The following transactions were carried out with related parties: 2011 2010 (a) Directors and executive officers KShs’000 KShs’000 Group and Company
Directors emoluments – Group 36,277 46,765 Others 3,411 10,712 Company fees 7,844 12,015
47,532 69,492
(b) Inter-company sales – Group
From East African Cables Limited to Tanelec Limited 33,927 34,938 From Avery (East Africa) Limited to East African Cables Limited 8,662 798 From Chai Bora Limited to Avery (EA) Limited 307 - 42,896 35,736
(c) Interest income - Company
Chai Bora Limited 11,154 11,247 Crystal Limited 4,191 2,989
15,345 14,236
62 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
27. RELATED PARTIES TRANSACTIONS (continued) 2011 2010 KShs’000 KShs’000 (d) Dividends receivable - Company
Cable Holdings (Kenya) Limited 178,618 64,102 Avery (East Africa) Limited 22,907 6,118 Tanelec Limited 16,302 26,816 TC Mauritius Holdings Limited - 251,198 Metal Fabricators of Zambia Plc - 7,299 217,827 355,533
(e) Technical fees - Company
Tanelec Limited 42,214 27,782 Kewberg Cables and Braid (Pty) Limited 31,453 29,979 Avery (East Africa) Limited 9,761 12,306 Chai Bora Limited 33,121 27,522
116,549 97,589
(f) Loans to subsidiaries - Company
Payable after 12 months: Trans-Century Holdings (Proprietary) Limited - South Africa 196,487 230,793 Crystal Ltd – Tanzania 436,171 393,107
632,658 623,900
Payable within 12 months: Chai Bora Ltd – Tanzania 73,710 73,710 Trans-Century Holdings (Proprietary) Limited 43,014 50,525 116,724 124,235
(g) Loan from subsidiary - Company Cable Holdings (Kenya) Limited 746,209 576,073
(h) Due from/(to) related parties - Company
Cable Holdings (Kenya) Limited 73,830 10,233 Avery (East Africa) Limited 38,215 8,739 Chai Bora Limited 23,926 26,532 East African Cables Limited 37 - Crystal Limited 14,128 9,937 TC Holdings Pty Limited 1,958 1,958 Tanelec Limited 78,214 (18,810) Kewberg Cables and Braid (Pty) Limited 117,219 54,445 TC Mauritius Holdings Limited (14,677) (292) Cable Holdings Mauritius Limited 2,782 3,087 TC Railway Holdings Mauritius 1,587 1,876 Safari Rail Company Limited 546 1,093 Cableries du Congo 14,616 - 352,381 98,798
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 63 Notes to the Consolidated Financial Statements
28. BUSINESS COMBINATIONS
On 30 September 2011 the group through its subsidiary TC Holdings Mauritius obtained the control of Civicon Limited, a company involved in the provision of civil and mechanical engineering and transportation services by acquiring 62% of the shares and voting interests of the company.
On 31 May 2011 the group through its subsidiary Tanelec Limited also obtained the control of Pende Group by acquiring 80% of the shares and voting interest of the company. Pende Group is incorporated in Zambia and involved in the sale of electrical hardware and provision of engineering services as well as the manufacturing of transformers.
Taking control of the two companies is driven by the Group’s belief in the long term growth prospects of the East, Central and Southern African regional infrastructure opportunity. The investment also positions the group to actively participate in infrastructure development across the region going forward. The above businesses acquired during the year contributed revenue of KShs 1.75 billion and Earnings Before Interest and Tax (EBIT) of KShs 677.6 million to the group results.
Total (KShs’000) Property Plant and Equipment 2,086,556 Intangible assets 14,671 Investment Property 30,422 Inventories 27,672 Related party assets & liabilities 36,597 Trade & other receivables 1,499,973 Tax recoverable 77,008 Deferred tax liability (32,006) Tax payable (254,278) Trade and other payables (523,411) Borrowings (614,296)
Total net assets acquired during the year 2,348,908
Non controlling interest at acquisition 889,098 Majority interest at acquisition 1,459,810
Total net assets acquired during the year 2,348,908
The fair value of property, plant and equipment, Leases and Intangible assets has been determined provisionally pending completion of an independent asset valuation exercise. The process of fair valuing the other assets and liabilities of the company is also still ongoing and if new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identifies any adjustments to the above amounts, or any additional provisions that existed at the acquisition date, then the acquisition accounting will be revised in the following financial year.
64 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
Total 259,435 356,665 616,100 (748,798) (253,165) KShs’000 1,618,063 10,701,621 - - - - (45,840) Intra-group adjustments - - - - (35,223) Affiliated investments
------773,139 KShs’000 KShs’000 KShs’000 Transport
- - - - - 982,641 102,570 KShs’000 Consumer
- - - - - 654,853 KShs’000 2,034,609 Specialized engineering
- - - - - Power Power 122,724 KShs’000 7,730,211
interest
costs
Power Transport engineering Specialized Consumer SEGMENT INFORMATION segments: business units in the following the strategic reportable which are has four segments Group The • • • • Finance Income tax expenses Equity holders Non-controlling Year ended 31 December 2011 ended 31 December Year Sales profit Operating year for the Profit to: Attributable For each of the strategic business units, the group Chief Executive Officer reviews internal management reports. Information regarding the results of each reportable results of each is the segment reports.regarding management internal Information Officer reviews Chief Executive the group business units, each of the strategic For described below. Performance is measured based on each segment profit before tax as indicated in the internal management reports that are reviewed by the Group Chief Executive Chief Executive by the Group reportsreviewed management in the internal are that tax as indicated before profit based on each segment is measured Performance described below. Officer. 29.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 65 Notes to the Consolidated Financial Statements
) Total 124,549 147,849 336,478 343,713 235,479 627,341 974,271 468,262 (343,686) (162,323 KShs’000 5,352,278 6,794,650 21,742,184 14,104,376 11,233,758 ------(35,859) Intra-group adjustments - - - - - 659 3,232 2,172 427,780 Affiliated 5,606,845 6,922,074 1,692,207 2,039,886 investments
------KShs’000 KShs’000 KShs’000 2,820,837 Transport 1,248,762
------5,700 1,105 4,737 657,737 619,258 114,240 914,617 207,298 636,083 KShs’000 Consumer
------27,195 47,581 64,757 14,276 410,975 252,363 122,010 KShs’000 4,773,915 1,683,684 Specialized engineering
------Power Power 111,722 607,669 285,620 367,494 KShs’000 7,882,850 4,879,360 7,404,343 2,983,084 5,504,917
interest
costs
Segment assets comprise primarily property, plant and equipment, intangible assets, inventories, receivables and operating cash. They exclude deferred tax and certain intra group tax and certain group intra deferred exclude They cash. and operating receivables inventories, assets, intangible and equipment, plant primarily assets comprise Segment property, Profit for the year for the Profit and plant property, additions to comprises expenditure Capital tax and certain borrowings. exclude corporate They liabilities. operating liabilities comprise Segment receivables. assets. and intangible equipment SEGMENT INFORMATION (Continued) SEGMENT INFORMATION 2011 ended 31 December Year assets Segment liabilities Segment expenditure Capital and armotisation Depreciation Sales Finance Income tax expenses Equity holders Non-controlling Other information: assets Segment liabilities Segment expenditure Capital and armotisation Depreciation Other information: 2010 ended 31 December Year profit Operating to: Attributable 2010 ended 31 December Year 29.
66 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes to the Consolidated Financial Statements
30. CAPITAL COMMITMENTS Consolidated Consolidated Company Company 2011 2010 2011 2010 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
Authorised and contracted for 127,319 109,600 - -
31. CONTINGENCIES
One of Trans-Century Limited subsidiary, Cable Holdings (Kenya) Limited, has given a guarantee and indemnity and supported a pledge of its shares in East African Cables Limited to secure borrowings by Trans-Century Limited, its parent from Kenya Commercial Bank Limited, Commercial Bank of Africa Limited, Co-operative Bank of Kenya Limited and NIC Bank Limited. The maximum exposure is KShs 4.7 billion (2010 - KShs 4.7 billion) plus interest, charges and fees thereon.
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 67 Principal Shareholders and Distribution of Shareholding
Principal Shareholders of the Company and their respective Shareholding
As at 31 December 2011
Name of Shareholder No. of shares held %
ESTATE OF THE LATE JAMES MUNGAI GACHUI 22,353,190 8.16 MICHAEL GITAU WAWERU 21,245,080 7.76 PETER TIRAS KANYAGO 19,159,290 6.99 JIMNAH MWANGI MBARU 16,659,490 6.08 GITAU ZEPHANIAH MBUGUA 16,610,534 6.06 EDWARD NJOROGE 15,428,626 5.63 EPHRAIM KARIITHI NJOGU 12,424,256 4.54 STEPHEN NJOROGE WARUHIU 11,362,971 4.15 JOSEPH MBUI MAGARI 11,029,230 4.03 ROBIN MUNYUA KIMOTHO 10,851,510 3.96 SUB-TOTAL 157,124,177 57.35
OTHERS (626) 116,826,107 42.65
TOTAL ISSUED SHARES 273,950,284 100.00
Distribution of Shareholding
As at 31 December 2011
Shares Range No. of Shareholders No. of shares held %
1 - 500 225 40,550 0.0% 501 - 5,000 218 469,844 0.2% 5,001 - 10,000 50 417,000 0.2% 10,001 - 100,000 72 2,860,592 1.0% 100,001 - 1,000,000 38 11,662,837 4.3% Above 1,000,000 33 258,499,461 94.4%
Total 636 273,950,284 100%
68 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 69 Notes
70 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Notes
REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 71 Proxy Form
TRANS-CENTURY LIMITED
TO: EMU REGISTRARS Secretaries, P.O. Box 61120 - 00200 NAIROBI
I …………………………………………………………………………….……………………………………………….………………
of ……………………………………………………………………………………………………………………………………………
being a member/members of ……………………………………………………………………………………………………………...
hereby appoint …………………………………………………………………………..…………………………………………………
of ………………………………………………………………………………………...... ….………………………………………......
or failing him …………………………………………………………………………….………………………………………...... …......
of ………………………………………………………………………………………….………………………………………...... ….....
as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting 24th May, 2012
Of the Company to be held on …………………………………………………………...………………………………………...... ….....
And at any adjournment thereof.
Signed/Sealed this …………. Day of ……………………………..………….….., 2012
……………………………………
……………………………………..
NOTE: The proxy form should be completed and returned not later than 48 hours before the meeting or any adjournment thereof. In case of a Corporation, the Proxy must be executed under the Common Seal.
72 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011